Question

Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was
a. 90.9.
b. 104.0.
c. 105.0.
d. 110.0.

Answer 1

The Consumer Price Index (CPI) can be calculated using the following formula:

\[
\text{CPI} = \left( \frac{\text{Cost of Basket in Current Year}}{\text{Cost of Basket in Base Year}} \right) \times 100
\]

In this case, the base year is Year 1, and the cost of the basket in Year 1 is $50. The cost of the basket in Year 3 is $55.

Using the formula, we can calculate the CPI for Year 3:

\[
\text{CPI in Year 3} = \left( \frac{55}{50} \right) \times 100 = 1.1 \times 100 = 110.0
\]

Thus, the value of the CPI in Year 3 is:

**d. 110.0.**