Prices of items included in the CPI are:
A) averaged with the price of every item weighted equally.
B) weighted according to amount of the item produced in GDP.
C) weighted according to quantity of the item purchased by the typical household.
D) chained to the base year by the year-to-year growth rate of the item.

Question

Quizplus · Accepted Answer

The prices of items included in the CPI are weighted according to the quantity of the item purchased by the typical household, not according to the amount produced in GDP or with equal weighting. This is called a "basket of goods" approach, where the items in the basket reflect the relative importance and consumption patterns of households. The prices are not chained to the base year by the year-to-year growth rate of the item, as CPI uses fixed weights based on a specific time period.

Prices of Items Included in the CPI Are