Final answer:
To convert the money spent on the basket to an index number, economists choose a base year with an index number of 100. The index numbers for other years can be found by dividing the dollar amounts for those years by the amount spent in the base year.
Step-by-step explanation:
To convert the money spent on the basket to an index number, economists choose a base year with an index number of 100. In this case, let's say the base year is time period 3 and the total spending in that year is $107. To find the index number, we divide $107 by itself ($107) and multiply by 100, resulting in an index number of 100. To find the index numbers for other years, we divide the dollar amounts for those years by $1.07, which is the amount spent in the base year.