Activity 4 : Futher exploration

Question

a) In the year 2013, the cost of living is expected to increase by 20 % based on year 2011 .
Calculate the expenditure index of each item in year 2013 based on year 2009 .

b) From the information in previous activity (4a) , use at least two methods to find the
composite index of expenditure in the year 2013 based on year 2009.

c) The impact of 20% increase in expenditure index in year 2013 can be reduced by
controlling expenses for the certain item . Give your suggestions on how to reduce this
percentage increase of expenditure for some items . Give reason for each suggestion
given.

d) Show the impact of your suggestion on the composite index of expenditure.

Answer

a) The cost of living increase by 20% in year 2013 based on year 2011.
P2013
I 2013/2011= X 100=120
P2011

P2011 X 120
∴ P 2013=
100

Where P2013 = Expenditure in 2013, and

P2011 = Expenditure in 2011
Add table- remember the symbol, must follow activity 2
Average Average Expenditure year
Item of
No expenditure expenditure year 2013, P2013
expenditure
year 2009 2011 Put in calculation
1 Food 730.00 1115.00 1338.00
2 House Rental 628.00 768.00 921.60
3 Transportation 228.80 332.50 399.00
4 Insurance 330.00 493.33 592.00
5 House Bills 274.50 340.63 408.75
6 Tuition Fees 400.00 566.67 680.00
7 Childs Welfare 500.00 800.00 960.00
8 Medical Fees 185.00 237.50 285.00
Table 4b
 Therefore, expenditure index of each item in year 2013 based on 2009:
P2013
I 2013/2009 = X 100
P2009

Where P2013 = Expenditure in 2013, and

P2009 = Expenditure in 2009

Add table
Expenditure
Average
Item of Expenditure year index, I 2013/2009
No expenditure
expenditure 2013 Put in
year 2009
calculation
1 Food 730.00 1338.00 183
2 House Rental 628.00 921.60 147
3 Transportation 228.80 399.00 174
4 Insurance 330.00 592.00 179
5 House Bills 274.50 408.75 149
6 Tuition Fees 400.00 680.00 170
7 Childs Welfare 500.00 960.00 192
8 Medical Fees 185.00 285.00 154
Table 4b

b) Calculation of composite index of expenditure in the year 2013 based on year 2009:

Method 1

Change the weightage and recalculate I x w

Item of Expenditure
No
expenditure index Average weightages IxW
1 Food 183 24% 4392
2 House Rental 147 17% 2499
Transportatio
3 n 174 7% 1218
4 Insurance 179 11% 1969
5 House Bills 149 7% 1043
6 Tuition Fees 170 12% 2040
7 Childs Welfare 192 17% 3264
8 Medical Fees 154 5% 770
      100% 17195
Table 4b

Composite Index , Í =
∑ I i W i = 17195 =172
∑ W i 100
Method 2

Remember to change the composite index that calculated in Activity 2

Since the cost of living is increase by 20% in year 2013 based on 2011, then the composite index
in year 2013 based on year 2009 will increase by 20% as well.

Composite Index of 2011 based on 2009 , Í 2011 =143

2009

Í 2011
2009
X 120
143 X 120
∴ Composit e Index of 2013 based on 2009 , Í 2013 = = =172
2009
100 100

c) The impact of 20% increase in expenditure index in year 2013 can be reduced
controlling expenses for the certain items.
Firstly, transportation expenses can be reduced to 10% from 20% in year 2013. The
method to decrease the percentage is by car pooling or use of public transportation.
Besides that, food expenses also can be decreased to 15% from 20%.The method to
decrease the percentage is by home cooking instead of going out to eat and it is a
healthier lifestyle rather than fast food.
Lastly, tuition fees can be reduced to 5% from 20%. The method to decrease the
percentage is by self study at home than having home tuition or tuition at tuition centre
which is costly per month.

d) Composite index will decrease.