Compute a consumer price index for apples

Reference no: EM13212678

Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2, green apples cost $1, and Abby buys 10 green apples a. Compute a consumer price index for apples for each year. Assume that year 1 is he base year in which the consumer basket is fixed. How does your index change from year 1 to year 2. b. Compute Abby's nominal spending on apples in each year. How does it changes from year 1 to year 2? (To compute nominal spending you need to use the current prices) c. Using year 1 as the base year, compute Abby's real spending on apples in each year. How does it changes from year 1 to year 2? (To compute real spending you need to use the base year prices) d. Defining the implicit price deflator as nominal spending divided by real spending, compute the implicit price deflator for each year. How does the deflator change from year 1 to year 2?

Reference no: EM13212678

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