what is the price index for 2007 when $675.00 is total expenditure for that year and $600.00 for 2006. These total expenditures comes from a fixed market basket of goods. How do you calculate price index?

Question

what is the price index for 2007 when $675.00 is total expenditure for that year and $600.00 for 2006.  These total expenditures comes from a fixed market basket of goods. How do you calculate price index?

drwls · Answer

Calculation of the Price Index depends upon what year you consider the baseline or reference. The Index is usually expressed as 100 for some reference year. If 2006 is the baseline year, the index for 2007 would be 675/600 * 100 = 112.5