Suppose in 2014 the cost of a market basket of goods was 199

Suppose in 2014, the cost of a market basket of goods was $1,997. In 2016, the cost of the same market basket of goods was $2,144. Calculate the price index for 2016, using the price index formula, assume 2014 is the base year(Enter your response as an index number rounded to one decimal place.)

Solution

To calculate the Price Index, take the price of the Market Basket of the 2016, which is the current year, and divide it by the price of the Market Basket of the base year, which is 2014, then multiply by 100.

Market basket in base year= $2144

Price index for 2016=(Market basket in current year / Market basket in base year) x100

                   = ($2144/$1997) x100

                    = (1.0736) x 100 = 107.4

2. Market basket in current year= $2066

Market basket in base year= $2048

Price index for 2016=(Market basket in current year / Market basket in base year) x100

                   = ($2066/$2048) x100

                  = (1.00879) x 100 = 100.9