In Bovania,milk Constitutes 56% of the Typical Basket of Goods

question 92

Multiple Choice

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%.Based on the information given,we can definitely say:

• A) the consumer price index (CPI) in Bovania is greater than in the previous year.
• B) the CPI in Bovania is less than in the previous year.
• C) if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI.
• D) because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received.
• E) shoe-leather costs have decreased.

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