ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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on the average, current prices are less than past year prices.
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on the average, current prices are below base year prices.
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the quantities of the goods and services contained in the CPI market basket have increased on the average.
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either the quantities of the goods and services contained in the CPI market basket have increased on the average and/or the prices of goods and services contained in the CPI market basket have increased on the average.
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the prices of goods and services contained in the CPI market basket have increased on the average.
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Detailed explanation-1: -When there is an upward change in the CPI, this means there has been an increase in the average change in prices over time. This eventually leads to adjustments in the cost of living and income (presumably so that income is adjusted to meet a higher cost of living). This process is referred to as indexation.
Detailed explanation-2: -To find the CPI in any year, divide the cost of the market basket in year t by the cost of the same market basket in the base year. The CPI in 1984 = $75/$75 x 100 = 100 The CPI is just an index value and it is indexed to 100 in the base year, in this case 1984.
Detailed explanation-3: -The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services.