The CPI changes from 100 to 125. This means that:
A)consumers are now able to purchase 25% more goods and services.
B)overall prices are now 25% higher than they used to be.
C)the base year index has changed from 100 to 125.
D)the GDP deflator has also risen from 100 to 125.

Question

Quizplus · Accepted Answer

The CPI, or Consumer Price Index, measures changes in the average prices of a basket of goods and services commonly purchased by households. When the CPI changes from 100 to 125, it means that the overall price level has increased by 25%. This does not necessarily mean that consumers are able to purchase 25% more goods and services as it depends on whether their incomes have also increased in the same proportion. The base year index changing from 100 to 125 would simply mean that the base year itself has become less relevant in measuring current prices. The rise in GDP deflator from 100 to 125 is not necessarily related to the change in CPI.

The CPI Changes from 100 to 125