Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 5 red apples and 2 green apples. In year 2, red apples cost $2, green apples cost $1, and Abby buys 1 red apple and 7 green apples.

(a) Compute a consumer price index for apples for each year. Assume that year 1 is the base year and that the typical basket of goods is 8 red apples and 1 green apple.

(b) Calculate the percent change in CPI (inflation rate). Did the price level increase or decrease?

(c) Compute Abby's nominal spending on apples in each year. How does it change from year 1 to year 2?

(d) Using your answer from part (a), compute Abby's real spending (total spending divided by CPI) on apples in each year. How does it change from year 1 to year 2?