The consumer price index CPI)
A) measures the increase in the prices of the goods included in GDP.
B) is the ratio of the average price of a typical basket of goods to the cost of producing those goods.
C) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
D) compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2.

Question

Quizplus · Accepted Answer

The CPI compares the cost of a basket of goods typically consumed in the current period to the cost of that same basket of goods typically consumed in a reference base period. It measures inflation by tracking changes in the prices of a representative group of goods and services consumed by households. Option A is incorrect because CPI measures the increase in the overall price level rather than only the goods included in GDP. Option B is incorrect because CPI does not relate the average price of a basket of goods to the cost of producing those goods. Option D is incorrect because CPI does not compare the cost of a typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2, it compares the cost of a basket of goods in two different time periods.

The Consumer Price Index CPI)