If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:
A) increased by 20%.
B) decreased by 20%.
C) remained the same.
D) cannot be determined without knowing the base year.

Question

Quizplus · Accepted Answer

The CPI increased by 20% between 2000 and 2010, meaning that prices in general increased by 20%. The price of milk also increased by 20%, which means that the real price of milk remained the same. This is because the increase in the price of milk is proportional to the increase in the CPI, so the purchasing power of a dollar did not change.

If the CPI Was 100 in 2000 and 120 in 2010