Asked by Chris Mckibben on Jun 10, 2024
Verified
Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was
A) 90.9.
B) 104.0.
C) 105.0.
D) 110.0.
Consumer Price Index
An economic indicator that measures the average change over time in the prices paid by consumers for a basket of goods and services.
Basket's Cost
The total expense of a selected set of goods and services over a period, often used to measure inflation.
Base Year
A reference year used for comparative financial analysis in which indices or prices are normalized to 100.
- Learn about the framework and determination process of the Consumer Price Index (CPI) and its significance in gauging inflationary trends.
- Recognize the importance of selecting a base year and how it influences the calculation of inflation rates.
Verified Answer
DE
Destiny EsperJun 15, 2024
Final Answer :
D
Explanation :
The Consumer Price Index (CPI) for Year 3 is calculated by taking the cost of the basket in Year 3 ($55), dividing it by the cost of the basket in the base year (Year 1, $50), and then multiplying by 100. This gives a CPI of 110.0 for Year 3.
Learning Objectives
- Learn about the framework and determination process of the Consumer Price Index (CPI) and its significance in gauging inflationary trends.
- Recognize the importance of selecting a base year and how it influences the calculation of inflation rates.