Question

If food makes up about 15% of total expenditure of the country, and if the food prices rise by 10%, while other components of the price index remain constant, how much will the price index rise?
a. 1%
b. 25%
c. 1.5%
d. 15%

Answer 1

Answer:

c. 1.5%

Explanation:

Food as total Expenditure of Country = 15%

Food's Price rise = 10%

while other components of the price index remain constant price index rise will be calculated as follows:

Price index rise = 15% x 10%

Price index rise = 0.15 x 0.1

Price index rise = 0.015

Price index rise =1.5%

So the correct option is c. 1.5%