Martha has noticed that the CPI has increased by 7% over the past year.What is the best conclusion for Martha to make based on this information?
A)Her cost of living has increased by 7%.
B)The price of necessities such as food, rent, and medicine has increased by an average of 7%.
C)Her income has increased by 7%.
D)The weighted average of prices of goods and services in a market basket bought by a typical consumer has increased by 7%.

Question

Quizplus · Accepted Answer

The CPI measures the weighted average of prices of goods and services bought by a typical consumer, so an increase of 7% means that the overall price level has gone up by that amount. It does not necessarily mean that Martha's cost of living or the prices of specific necessities have gone up by exactly 7%, nor does it imply that her income has increased by that amount.

Martha Has Noticed That the CPI Has Increased by 7