If the purchasing power of a dollar measured in terms of the base year was $0.41, what was the price index?
A) 238
B) 244
C) 41
D) 42
E) 100

Question

Quizplus · Accepted Answer

The purchasing power of a dollar measured in terms of base year is also called the value of the dollar. Given that value of dollar is $0.41, we can use the formula for price index:
Price index = (Value of dollar / 1) x 100
Price index = ($0.41 / $1) x 100 = 41
So the price index is 41, which means prices have increased by 41% since the base year. However, this is not one of the choices, so we need to use the reciprocal of the value of the dollar:
Price index = (1 / Value of dollar) x 100
Price index = (1 / $0.41) x 100 = 243.9024
Rounding to the nearest integer, we get 244, which corresponds to choice B.

If the Purchasing Power of a Dollar Measured in Terms