Practice Quiz

CLEP Principles of Macroeconomics Exam Prep

Category - Macroeconomics

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Imagine that the consumer price index rises from 125 to 250. What can be concluded from this information?
  1. Consumer incomes are all doubled
  2. Consumer incomes are cut in half
  3. All prices in the average consumer’s market basket are doubled
  4. All prices in the given economy are doubled
Explanation
Answer - C - In this scenario, all prices in the average consumer’s market basket are doubled.

Key Takeaway: CPI is the term for the economic indicator that measures change in price over time, using a fixed market basket of average services and goods. To calculate the Consumer Price Index (CPI), you need to set up a ratio between the cost of the market basket of goods in the given year to the cost of those same goods in the base year.
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