Martha has noticed that the CPI has increased by 7 percent 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 percent.
B) The price of necessities such as food, rent, and medicine has increased by an average of 7 percent.
C) Her income has increased by 7 percent.
D) The weighted average of prices of goods and services in a market basket bought by a typical consumer has increased by 7 percent.

Question

Quizplus · Accepted Answer

The CPI measures the weighted average of prices of goods and services in a market basket bought by a typical consumer, so Martha can conclude that the CPI has increased by 7 percent, indicating that overall prices have gone up. It does not necessarily mean her cost of living increased by exactly 7 percent, nor does it provide information on specific categories of goods and services that may have experienced bigger or smaller price increases. It also does not provide any information on changes in Martha's income.

Martha Has Noticed That the CPI Has Increased by 7