What does a CPI value of 100 represent?
A. The cost of the basket in the base year
B. The current inflation rate
C. The total income of consumers in a given year
D. The nominal interest rate for the base year
Answer (2)
CPI measures the change in the price of a basket of goods and services over time.
A CPI of 100 indicates prices are the same as in the base year.
The base year is a reference point for measuring price changes.
Therefore, a CPI value of 100 represents the cost of the basket in the base year. The cost of the basket in the base year
Explanation
Understanding CPI The Consumer Price Index (CPI) measures changes in the price level of a basket of consumer goods and services purchased by households. A CPI value of 100 indicates the cost of the basket of goods and services in the base year. The base year serves as a reference point against which price changes are measured.
CPI Value of 100 When the CPI is 100, it signifies that the prices in the current year are identical to those in the base year. This means there has been no change in the cost of the basket of goods and services since the base year.
Conclusion Therefore, a CPI value of 100 represents the cost of the basket in the base year.
Examples
Understanding CPI is crucial for making informed financial decisions. For example, if you're comparing the price of groceries today versus the price in the base year when CPI was 100, you can see how much prices have changed. This helps in budgeting and understanding the real value of your money over time. CPI is also used to adjust salaries and pensions to maintain purchasing power in line with inflation.
A CPI value of 100 represents that the cost of the basket of goods and services is the same as in the base year, signifying no change in overall prices since then. This designation of 100 serves as a benchmark for measuring inflation or deflation over time. Therefore, the correct choice is A. The cost of the basket in the base year.
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