An increase in the Consumer Price Index indicates that
A) the real income of households is increasing.
B) the purchasing power of the dollar is increasing.
C) the cost of buying the typical bundle of goods consumed by households is increasing.
D) the real net worth of consumers is increasing.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) measures the average prices of a basket of goods and services consumed by households. An increase in CPI indicates that the cost of buying the typical bundle of goods and services consumed by households is increasing. This has the effect of reducing the purchasing power of the dollar, which means that consumers can buy fewer goods and services with each dollar they have. Therefore, choice (C) is the correct answer.

An Increase in the Consumer Price Index Indicates That