Table 20-8

-Between 2011 and 2012,the CPI of a small nation rose from 182 to 185.If household incomes rose by 3% during that period of time,which of the following is true?

Question

Table 20-8
 
-Between 2011 and 2012,the CPI of a small nation rose from 182 to 185.If household incomes rose by 3% during that period of time,which of the following is true?

Quizplus · Accepted Answer

The CPI measures the price level of goods and services in an economy over a period of time. If the CPI increases, it means that the cost of living has increased. However, if household incomes also increase by the same percentage or more, then the purchasing power of household income would have increased. In this case, since household incomes rose by 3%, the purchasing power of household income also rose. Therefore, the correct answer is A. Option B is incorrect because household incomes increased, so it is unlikely that purchasing power fell. Option C is also incorrect because CPI increased, indicating that prices have gone up, but household incomes rose too, which would have offset some of the effects of the inflation. Finally, option D is incorrect because the CPI can be used to determine changes in purchasing power if household incomes are also considered.

Table 20-8 -Between 2011 and 2012,the CPI of a Small Nation Rose