i. Besides measuring change in the prices of goods and services, the consumer price indexes have a number of other applications. The CPI is used to determine real disposable personal income, deflate sales or other series, find the purchasing power of the dollar and establish cost of living increases. ii. The concept of real income is sometimes called deflated income or income expressed in constant dollars and the CPI is called the deflator.
iii. To deflate sales, the actual sales are multiplied by the wholesale price index and the result multiplied by 100.
A) (i), (ii), and (iii) are all correct statements.
B) (i) and (ii) are correct statements but not (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (ii) and (iii) are correct statements but not (i).
E) (i), (ii), and (iii) are all false statements.

Question

Quizplus · Accepted Answer

Statement (i) is correct as it lists the various applications of consumer price indexes. Statement (ii) is also correct as it explains the concept of real income and the CPI's use as a deflator. However, statement (iii) is not entirely correct as to deflate sales, the actual sales are multiplied by the consumer price index (CPI) and the result divided by 100. Therefore, only (i) and (ii) are correct statements but not (iii).

I Besides Measuring Change in the Prices of Goods and Services