Consider that the CPI market basket includes two goods (X and Y), and the spending on X constitutes 70% of the overall consumer spending, while the remainder is allocated to Y.

If the price of Y increases by 10% while the price of X decreases by 10% then, all else held constant,

a. The CPI increases
b. The CPI decreases
c. The CPI remains unchanged

b. The CPI decreases

Explanation:

The Consumer Price Index (CPI) measures any change in the price level of a weighted average market basket of consumer goods and services.

It is stated that Good X constitutes 70% of consumer spending and Good Y constitutes the remainder which would be 30%.

If X decreases by 10% and Y increases by 10%, what would happen to the CPI?

Because the CPI is a weighted average, we can use the following,

Change in CPI = 0.7(-0.1) + 0.3(0.1)

= -7 + 3

= -4%

This means that the CPI will DECREASE by 4% because the price decrease occured in the Good with the higher Consumer Budget share.

the answer is     d. in our global economy, most job growth will be in services, but manufacturing jobs will exist, too.

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