Assume the market basket for the consumer price index has two products-bread and milk-with the following values in 2013 and 2018 for price and quantity: The Consumer Price Index for 2018 equals : A. 118 B. 116 C. 86 D. 85

E. None of the above

Explanation:

Table 4

Base Year         (2013)       2018         2013                2018

Product Quantity  Price       Price     Total Amount    Total Amount

Milk          50       $1.20        $1.50        $60                        $75

Bread      100       $1.00        $1.10        $100                       $110

Therefore CPI for 2018 = $75 +$110 = $185

B) 116

Explanation:

                                             2013                2018

Product       Quantity           Price                 Price    

Milk                 50                 $1.20                $1.50                          

Bread             100                $1.00                 $1.10                              

price of CPI basket 2013 = (50 x $1.20) + (100 x $1) = $160

price of CPI basket 2018 = (50 x $1.50) + (100 x $1.10) = $185

CPI 2018 = ($185 / $160) x 100 = 115.6 ≈ 116

The CPI measures the price level of a basket of goods compared to a base year, in this case the base year was 2013.

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