The consumer price index for Macroland consists of only two items: books and pizzas.In 2011,the base year,the typical consumer purchased 5 books for $55 each and 20 pizzas for $6 each.In 2012,the typical consumer purchased 10 books for $80 each and 30 pizzas for $7 each.The consumer price index for 2012 in Macroland equals
A) 100.
B) 108.
C) 115.
D) 137.
E) 185.

Question

Quizplus · Accepted Answer

The CPI is calculated by dividing the cost of the basket in the current year by the cost of the basket in the base year, then multiplying by 100. In 2011, the cost was (5 books * $55) + (20 pizzas * $6) = $275 + $120 = $395. In 2012, the cost was (5 books * $80) + (20 pizzas * $7) = $400 + $140 = $540. CPI for 2012 = ($540 / $395) * 100 = 137.

The Consumer Price Index for Macroland Consists of Only Two