If the price of housing (which accounts for 40 percent of total expenditures in the CPI basket), rises by 5 percent in one year while the prices of all other goods remain constant, by how much will the CPI rise?

Question

Quizplus · Accepted Answer

The CPI will rise by 2 percent because the increase in housing prices (which is 5 percent) affects only the 40 percent of the total CPI basket. Therefore, the overall impact is 0.40 * 5% = 2%.

If the Price of Housing (Which Accounts for 40 Percent