Chapter 15, Problem 3MCQ

To determine

The question requires us to determine the true option for the CPI.

Explanation of Solution

CPI measures the change in prices of a basket of goods and services in a given time. It is used to calculate the official inflation rate in an economy. The following expression shows the relationship between CPI and the inflation rate.

  $\text{Inflation}\text{}\text{rate = }\frac{\text{CPI}\text{in}\text{current year - CPI in base year }}{\text{CPI in base year}}\text{×100}$

CPI is calculated by using the current year price and base year price of the same basket of goods and services. It is the common measurement of the price level in an economy. Generally, government payments and private payments such as social security payments, tax brackets, cost-of-living allowances, and wage settlements are indexed to the CPI.

Therefore, all the given options are true about CPI.

Option “e” is correct.