A price index can be constructed by:
A)dividing the value of a market basket by the rate of inflation.
B)dividing the current-year value of a market basket by the base-year value of the same market basket and multiplying by 100.
C)multiplying the value of a market basket by the rate of inflation.
D)multiplying the current-year value of a market basket by the base-year value of the same market basket and dividing by 100.

Question

A price index can be constructed by:
A)​dividing the value of a market basket by the rate of inflation.
B)​dividing the current-year value of a market basket by the base-year value of the same market basket and multiplying by 100.
C)​multiplying the value of a market basket by the rate of inflation.
D)​multiplying the current-year value of a market basket by the base-year value of the same market basket and dividing by 100.

Quizplus · Accepted Answer

This is the definition of the price index or the consumer price index (CPI). The base year is used as a reference point, and the current year value is divided by the base year value and multiplied by 100 to express it as a percentage. This formula helps to measure the percentage change in prices of goods and services over time.

A Price Index Can Be Constructed By