Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2, green apples cost $1, and Abby buys 10 green apples.
a) Compute a consumer price index for apples for each year. Assume that year 1 is the base year in which the consumer basket is fixed. How does your index change from year 1 to year 2?
b) Compute Abby's nominal spending on apples in each year. Quantities consumed each year and prices each year are used in the calculation as in nominal GDP. How does it change from year 1 to year 2?
c) Using year 1 as the base year, compute Abby's real spending on apples in each year. Now quantities consumed of each year but prices of the base year are used. How does it change from year 1 to year 2?