If this year the CPI is 110 and last year it was 100, then
A) the cost of the CPI basket of goods and services has increased this year by 110 percent.
B) the price level as measured by the CPI has increased by 10 percent.
C) the inflation rate for this year has increased by 10 percent over last year's inflation rate.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The CPI measures the price level of a basket of goods and services. If the CPI increased from 100 to 110, it means the price level has increased by 10 percent. Choice A is incorrect because the increase in CPI does not mean the cost of the basket of goods and services has increased by 110 percent, but rather the overall price level has increased by 10 percent. Choice C is also incorrect because it compares the inflation rate of this year to the inflation rate of last year rather than looking at the actual increase in the CPI.

If This Year the CPI Is 110 and Last Year