Chapter 15, Problem 1MCQ

To determine

The question requires us to determine the value of the consumer price index.

Explanation of Solution

Given,

Year 1 is the base year.

Price of goods in year 1 = $100

Price of goods in year 2 = $108

  $\begin{array}{c}\text{Consumer price}\text{index}\text{for}\text{year}2\text{=}\frac{\text{Price}\text{of}\text{good}\text{in}\text{current}\text{year}}{\text{Price}\text{of}\text{good}\text{in}\text{base}\text{year}}\text{×100}\\ =\frac{\$108}{\$100}\times 100\\ =108\end{array}$

The price index for year 2 is 108.

Option “d” is correct.

Economics Concept Introduction

The formula for the price index is:

  $\text{Consumer price}\text{index=}\frac{\text{Price}\text{of}\text{good}\text{in}\text{current}\text{year}}{\text{Price}\text{of}\text{good}\text{in}\text{base}\text{year}}\text{×100}$