The price index for the current year is 180.This means that, on average, prices in the current year are:
A)80 percent of prices in the base year.
B)$1.80 higher than prices in the base year.
C)180 percent higher than prices in the base year.
D)$0.80 higher than prices in the base year.
E)80 percent higher than prices in the base year.

Question

Quizplus · Accepted Answer

A price index of 180 means that prices in the current year are 80% higher than in the base year. This is because the price index is calculated by taking the current year's average price and dividing it by the base year's average price, then multiplying by 100. So, 180 = (current year's average price ÷ base year's average price) x 100. Solving for the current year's average price, we get current year's average price = (180/100) x base year's average price = 1.8 x base year's average price. This means that prices are 1.8 times higher than in the base year, or 80% higher (because 1.8 - 1 = 0.8, or 80%).

The Price Index for the Current Year Is 180