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Macroeconomic Variables

In an economy where two goods, wheat and cloth, are produced. A representative consumer buys 90 kg of wheat and 5 pieces of cloth in a year. Suppose in the year 2022 the price of a kg of wheat was Rs 10 and a piece of cloth was Rs 100. The prices of a kg of wheat and a piece of cloth went up to Rs 15 and Rs 120 respectively in the year 2025. It is worth noting that many commodities have two sets of prices. One is the retail price which the consumer actually pays. The other is the wholesale price, the price at which goods are traded in bulk. These two may differ in value because of the margin kept by traders.

The total sum consumer spends on cloth in 2022?

Solution

✅ Correct Option: 2

To find the Consumer Price Index (CPI), we compare the cost of a specific "basket" of goods in the current year to the cost of that same basket in a base year.

1. Calculate the Cost of the Basket in 2022 (Base Year)

In 2022, the consumer buys 90 kg of wheat at Rs 10 and 5 pieces of cloth at Rs 100.

  • Wheat: 90×10=90090 \times 10 = 900
  • Cloth: 5×100=5005 \times 100 = 500
  • Total Cost (2022): 900+500=Rs 1,400900 + 500 = \text{Rs } 1,400

2. Calculate the Cost of the Basket in 2025 (Current Year)

In 2025, the prices rise to Rs 15 for wheat and Rs 120 for cloth.

  • Wheat: 90×15=1,35090 \times 15 = 1,350
  • Cloth: 5×120=6005 \times 120 = 600
  • Total Cost (2025): 1,350+600=Rs 1,9501,350 + 600 = \text{Rs } 1,950

3. Calculate the CPI

The formula for CPI is:

CPI=(Cost of basket in current yearCost of basket in base year)×100\text{CPI} = \left( \frac{\text{Cost of basket in current year}}{\text{Cost of basket in base year}} \right) \times 100

CPI=(1,9501,400)×100\text{CPI} = \left( \frac{1,950}{1,400} \right) \times 100

CPI=1.392857×100\text{CPI} = 1.392857 \times 100

CPI≈139.29\text{CPI} \approx \mathbf{139.29}

Correct Option: 139.29 (approximately).

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