Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,what will people likely buy?

Question

Quizplus · Accepted Answer

An increase in the CPI means a decrease in the purchasing power of money, essentially meaning that people's incomes have not kept up with the increase in prices. Therefore, people are likely to buy less of both goods, including less milk and fewer T-shirts.

Suppose the Price of a Litre of Milk Rises from $1