Answer to Question #295826 in Macroeconomics for Holm

Question

The people on coral Island by only juicing cloth. The CPO basket contains a quantities bought in 2013. The average household spent $34 on juice and $40 on cloth and 2013 when the price of juice was two dollars a bottle and the price of cloth was four dollars a yard. in 2014 juices four dollars a bottle and cloth is seven dollars a yard. Calculate the CPI basket and the percentage of the households for budget spent on juice in 2013

Answer 1

Consumer Price Index

$CPI=\frac{C_t}{C_o}\times 100$

$C_t=current\ price$

$C_o=base\ price$

2013 is the base year in this case and the current year at the same time.

$\therefore C_t=(34+40)=74$

$C_o=74\ Since\ 2013\ is\ base\ and\ current\ year$

$\bold{CPI=\frac{74}{74}\times 100=1}$

Percentage spent on Juice

$Total\ budget=34+40=74$

$Expenditure\ on \ Juice=34$

$\% expenditure =\frac{34}{74}\times100=\bold{46\%}$