In an imaginary economy,consumers buy only shirts and pants.The fixed basket consists of 6 shirts and 4 pairs of pants.A shirt cost $20 in 2006 and $25 in 2007.A pair of pants cost $30 in 2006 and $40 in 2007.Using 2006 as the base year,which of the following statements is correct?

Question

Quizplus · Accepted Answer

To calculate the consumer price index (CPI), we need to find the total cost of the fixed basket in both years.

In 2006: 
6 shirts x $20 per shirt = $120 
4 pairs of pants x $30 per pair = $120 
Total cost of fixed basket = $240

In 2007: 
6 shirts x $25 per shirt = $150 
4 pairs of pants x $40 per pair = $160 
Total cost of fixed basket = $310

To calculate the CPI, we use the formula: 
CPI = (Cost of fixed basket in current year / Cost of fixed basket in base year) x 100

CPI in 2007 = ($310 / $240) x 100 = 129.17

Therefore, statement B is incorrect - the CPI is 129.17 in 2007.

To calculate the rate of inflation, we use the formula: 
Rate of inflation = ((CPI in current year - CPI in previous year) / CPI in previous year) x 100

Rate of inflation in 2007 = ((129.17 - 100) / 100) x 100 = 29.17%

Therefore, statement C is correct - the rate of inflation is 29.17% in 2007.

Statement A is incorrect because we can see from the calculations above that the cost of shirts and pants increased at different rates, so the number of dollars spent on each is not equal.

Therefore, the correct answer is C) The rate of inflation is 29.17% in 2007.

In an Imaginary Economy,consumers Buy Only Shirts and Pants