Suppose that the total expenditures for a typical household in 2000 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2005 was $6,875. If 2000 is the base year, the CPI for the year 2005 equals:
A) 0.80
B) 1.00
C) 1.20
D) 1.25

Question

Quizplus · Accepted Answer

To calculate the CPI, we need to divide the cost of purchasing the same items in the year 2005 with the cost of purchasing the same items in the base year 2000 and multiply by 100.

CPI = (Cost of the same items in 2005 / Cost of the same items in 2000) x 100

CPI = (6875 / 5500) x 100

CPI = 1.25 x 100

CPI = 125

Therefore, the CPI for the year 2005 is 1.25 or 125%. Therefore, the correct answer is choice D).

Suppose That the Total Expenditures for a Typical Household in 2000