Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.20 for each unit of X, $0.96 for each unit of Y, and $1.30 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?

The correct answer is 117.

Explanation:

According to the scenario, the given data are as follows:

Current year prices of X = $1.20, Y =$0.96  and Z= $1.30

So, Current market basket cost = 10 × $1.20 = $12

= 20 × $0.96 = $19.2

= 30 × $1.30 = $39

Base year price of X, Y and Z = $1.00

So, base market basket cost = $10 , $20 and $30.

Now we can calculate the CPI in the current year by using following formula:

CPI = Sum of Current year basket cost ×100 / Sum of Base year basket cost

= ( 12 + 19.2 + 39) × 100 / ( 10 + 20 + 30 )

= 7020 / 60

= 117

Hence, the approximate CPI of current year is 117.