Inferring Economic Conclusions from Expenditure Data

Steps:

• Review the data for changes in prices, income, and spending across categories like food and clothing.
• Calculate the average price level using a weighted index of all goods.
• Compute the proportion of income spent on food by dividing food expenditure by total income.
• Compare these metrics to the previous period to identify trends.

Why D is correct:

• Budget share of food is defined as (food expenditure / total income); the data shows this ratio increased, indicating a higher proportion spent on food.

Why the others are wrong:

• A: Data shows no decline in clothing prices; they remained stable or rose.
• B: Living standards likely declined if food share rose, assuming no offsetting income gains.
• C: Average price level rose due to higher food costs outweighing other changes.

Final answer: D