A price index is
A) the price of a market basket in a given year divided by the price of an identical market basket in a reference year.
B) a comparison of real GDP in one period relative to another.
C) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period.
D) a ratio of real GDP to nominal GDP.

Question

Quizplus · Accepted Answer

A price index measures the average level of prices of a given set of goods and services over time. The most commonly used formula to calculate a price index is to divide the cost of a market basket of goods and services in a given year by the cost of the same basket in a reference or base year. This gives a measure of how much prices have changed over time relative to the base year. Option A correctly describes this formula.

A Price Index Is