The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

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BlackTom AI · Accepted Answer

Restating the question and options: The statement asserts that the CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket in the base year, then multiplying by 100. The answer choices are: True and False.
Option 1: True. This aligns with the standard formula for the Consumer Price Index (CPI): CPI in a given year = (Cost of basket in that year / Cost of basket in base year) × 100. The numerator represents the total expenditure required to purchase the fixed basket in the given year, while the denominator anchors that cost to the base year, providing a dimensionless index that expresses price level changes relative to the base year. The multiplication by 100 simply scales the ratio to a convenient index level, typically starting near 100 in the base year.
Option 2: False. This would suggest that the CPI is computed using a different method, such as not including the base-year normalization or omitting the 100 scaling factor. However, in standard CPI construction, the ratio to the base-year basket cost is indeed multiplied by 100, which makes the index interpretable as a percentage of the base-year price level. If either the division is omitted, or the 100 multiplier is omitted, the result would not match the conventional CPI formula and thus would misrepresent inflation over time.
Deliberating common misconceptions: Some might falsely think CPI is just the percentage change from the previous year rather than the index relative to the base year. While percentage changes (inflation rates) are derived from CPI values, the fundamental index itself is computed with the base-year basket cost and the 100 scaling. Another potential confusion is using a different price reference basket or a chained index, but the question specifies the classic fixed-basket approach with a base year, which supports the given computation.
In summary, the described computation—cost of the 2008 basket divided by cost of the base-year basket, multiplied by 100—matches the traditional CPI construction, making the statement consistent with standard definitions.

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

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