Suppose that on average each dollar in 1988 would buy what could have been purchased for 25 cents in 1967 (which you assume is the base year for the CPI).What is the CPI in 1988?

Question

Quizplus · Accepted Answer

The CPI in 1988 can be calculated as (average price level in 1988/average price level in 1967) * 100. Since each dollar in 1988 is equivalent to 4 dollars in 1967 (since each dollar buys what could have been purchased for 25 cents in 1967), the average price level in 1988 is 4 times the average price level in 1967. Therefore, the CPI in 1988 is (4*100)*100 = 400.

Suppose That on Average Each Dollar in 1988 Would Buy