Answer to Question #92697 in Macroeconomics for Alfred

Question

The people on thohoyandou island buy only juice and cloth the cpi basket contains the quantities bought in 2010 the average household spent $60 on juice and $30 on cloth in 2009 when the price of juice was $2 a bottle and the price of cloth was $5 a meter in the current year 2010 juice is $4 a bottle and cloth is $6 a meter. calculate the inflation rate. (3)

Answer 1

In 2009,

Total expenditure on juice is $60. The rate price is given as $2. Total no of bottle buy is 60/2=30

Total expenditure on cloth is $30.The rate price $5 per Meter. Total purchase Meter is 6.

Total expenditure on both juice and cloth is 60+30= $90

In 2010,

Total expenditure on the juice to be $120. The rate price is given as $4. Then only Total no of bottle to be purchased is 30

Total expenditure on the cloth is to be $36. The rate price is $6 per Meter. Then only Total Meter purchase is 6.

Total expenditure on both juice and clothes is $120+$36=$156

CPI at 2010 over the base 100 of 2009 is 156/90x100

i.e. 173

Simply the inflation is 73%