Question

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

a. Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006.
b. If 2007 is the base year, then the CPl is 33.75 in 2006.
c. If the CPI is 156.25 in 2007, then 2005 is the base year.
d. Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percents of Eoo milion and Tas rotained 30 nercent of

Answer 1

Correct option is C.

If the CPI is 156.25 in 2007, then 2005 is the base year.

Step-by-step explanation:

The CPI js given by the formula:

Current year prices/base year prices x 100

Given the values in years 2005,2006 and 2007, of all the given options, option (c) if the CPI is 156.25 in 2007, then 2005 is the base year is corrrect. This is because calculating CPI for 2007 using the above formula and 2005 as base year gives us CPI as 156.25.