Assignment 1 – Answers – Q3
3. The following table presents a decade’s data on three components of a typical household’s total
expenses: education, housing, and food.
Year
Education
Housing
Food
1994
$13,740
$17,100
$16,600
1995
$15,180
$19,100
$17,600
1996
$16,380
$20,500
$20,000
1997
$17,700
$21,920
$22,500
1998
$18,940
$23,520
$24,000
1999
$20,260
$24,620
$25,200
2000
$22,280
$24,620
$26,000
2001
$24,510
$25,820
$26,600
2002
$29,300
$26,720
$26,700
2003
$32,230
$26,720
$27,600
a. Using year 1994 as the base year, construct individual indices for each of the three expense
items.
Year
Education
Housing
Food
1994
100.00
100.00
100.00
1995
110.48
111.70
106.02
1996
119.21
119.88
120.48
1997
128.82
128.19
135.54
1998
137.85
137.54
144.58
1999
147.45
143.98
151.81
2000
162.15
143.98
156.63
2001
178.38
150.99
160.24
2002
213.25
156.26
160.84
2003
234.57
156.26
166.27
b. Which of these three items increased the most in percentage terms for the period 1994 – 1995
and by how much? How about over the entire decade (1994 – 2003)?
At the end of year 1995, Education expenses had grown by %10.48 (i.e., 110.48 – 100.00),
Housing expenses by %11.70, and Food expenses by %6.02. Therefore, the highest increase
was in Housing expenses.
During the entire decade, comparing year 2003 indexes with the base year, Education
expenses increased by %134.57, Housing expenses increased by 56.26, and Food expenses
increased by %66.27. Therefore, the highest increase was in Education expenses.
