A CPI that equals 1.34 in 2005 (when 2000 is the base year) means that:
A) prices in 2005 are 34 percent higher than in 2004.
B) the CPI equals $1.34 in 2005.
C) the inflation rate in 2005 is 134 percent.
D) the average level of prices is 34 percent higher in 2005 than in the base year.

Question

Quizplus · Accepted Answer

A CPI of 1.34 in 2005 (when the base year is 2000) means that the average level of prices is 34 percent higher in 2005 than in the base year. Therefore, option D is the correct choice. Option A is incorrect because the CPI measures the change in prices from the base year, not the change from the previous year. Option B is incorrect because the CPI is not a currency amount. Option C is incorrect because an inflation rate of 134 percent would mean that prices have more than doubled, which is not the case here.

A CPI That Equals 1