To measure the purchasing power of the dollar in a particular year _____
A) compute the price index for that year and then divide 100 by that price index.
B) compute the price index for that year and then multiply 100 by that price index.
C) compute the price index for that year and then add 100 to that price index.
D) compute the price index for that year and then subtract 100 from that price index.
E) compute the price index for that year.

Question

Quizplus · Accepted Answer

The purchasing power of the dollar refers to how much goods and services can be purchased with a dollar. The price index measures the overall level of prices in the economy for a given year. To determine the purchasing power of the dollar in a particular year, we need to adjust for inflation, which can be done by dividing 100 by the price index for that year. This gives us the value of a dollar in terms of purchasing power relative to a base year (usually chosen as 100).

To Measure the Purchasing Power of the Dollar in a Particular