If the CPI equals 100 in year one (the base year)and equals 106 in year two,what can be concluded?
A)The rate of inflation from year one to year two equals +106 percent.
B)The rate of inflation from year one to year two equals -6 percent.
C)The rate of inflation from year one to year two equals +6 percent.
D)National income has increased by 6 percent from year one to year two.

Question

Quizplus · Accepted Answer

The CPI is a measure of inflation, and when it goes from 100 to 106, it means that prices have increased by 6 percent from year one to year two. Therefore, the rate of inflation is +6 percent, which is option C. Option A is incorrect because a 106 percent inflation rate would mean that prices have more than doubled, which is not the case here. Option B is incorrect because a negative inflation rate would mean that prices have decreased, which again is not the case. Option D is incorrect because the CPI does not measure national income.

If the CPI Equals 100 in Year One (The Base