Which one of the following is TRUE?
A) Inflation increases the real value of money.
B) In the base year, the value of a price index is 100.
C) The consumer price index measures changes in the average income of consumers.
D) The market basket defined for the consumer price index contains more items than does the market basket defined for the GDP deflator.

Question

Quizplus · Accepted Answer

In the base year, the value of a price index is always set to 100. This serves as a benchmark for measuring changes in prices in subsequent years. Option A is incorrect because inflation reduces the real value of money. Option C is incorrect because the consumer price index measures changes in the price level of a basket of goods and services purchased by households, not changes in their income. Option D is incorrect because the market basket used in calculating the GDP deflator typically includes a broader range of goods and services than that used for the consumer price index.

Which One of the Following Is TRUE