Question

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as ... $23.86 purchased in 1965. When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Answer 1

When computing the cost of the basket of goods and services purchased by a typical consumer, the following changes from year to year:

1. Prices: The prices of individual goods and services in the basket can change from year to year. Inflation or deflation can cause prices to increase or decrease, respectively.

2. Weights: The relative importance or weights assigned to different goods and services in the basket can change over time. As consumer preferences and consumption patterns evolve, the composition of the basket may be adjusted to reflect these changes.

3. Quantities: The quantities of goods and services consumed by a typical consumer can vary from year to year. Changes in population, demographics, or consumer behavior can impact the quantities of goods and services included in the basket.

It's important to regularly update the Consumer Price Index (CPI) to account for these changes and provide an accurate measure of inflation and purchasing power over time.