Suppose a family spends $20,000 on a basket of goods in 2011.Suppose the same basket costs $22,000 in 2012.Using 2011 as the base year,the price index for 2012 is

Question

Quizplus · Accepted Answer

To calculate the price index, we use the following formula:

Price index = (cost of basket in current year/cost of basket in base year) x 100

Plugging in the numbers, we get:

Price index = (22,000/20,000) x 100
Price index = 1.1 x 100
Price index = 110

So the price index for 2012, using 2011 as the base year, is 110. Therefore, the best choice is D.

Suppose a Family Spends $20,000 on a Basket of Goods