In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?
A)The base year is always the first year among the years for which computations are being made.
B)It is necessary to designate a base year only in the simplest case of two goods;in more realistic cases,it is not necessary to designate a base year.
C)The value of the consumer price index is always 100 in the base year.
D)The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

Question

Quizplus · Accepted Answer

The value of the consumer price index is always set to 100 in the base year for ease of interpretation. This allows for comparisons to be made between different periods. A and D are incorrect because the base year can be any year and is not necessarily the first or the year with the highest basket cost. B is incorrect because a base year is necessary in all cases when computing the consumer price index.

In Computing the Consumer Price Index,a Base Year Is Chosen