If the consumer price index increased from 1.52 to 1.65, then it must be the case that ______ relative to prices in the base year.

Question

BlackTom AI · Accepted Answer

To begin, the question presents a change in the consumer price index (CPI) from 1.52 to 1.65 and asks what this implies about prices relative to the base year.

First, recall what the CPI represents: it is a weighted average of prices for a basket of goods and services, measured relative to the base year. A rise in the CPI indicates that the overall price level of that basket has increased compared to the base year. In this case, moving from 1.52 to 1.65 shows that the index value is higher, i.e., the weighted average level of prices has risen relative to the base year.

Next, quantify the change to understand its magnitude: the percentage change in the CPI is (1.65 − 1.52) / 1.52 ≈ 0.13 / 1.52 ≈ 8.6%. This means the average price level for the basket has increased by roughly 8.6% since the base year.

Since the CPI is a relative measure anchored to the base year, any increase in the index signifies that prices, on balance, are higher than they were in the base year. Therefore, the correct interpretation is that the weighted average level of prices rose.

Note: The provided data include an answer field identifying the correct option as 'the weighted average level of prices rose,' but there were no answer options listed in the 'answer_options' field to analyze contextually. In a complete multiple-choice setup, one would compare each listed statement to the implication of a higher CPI and justify alignment with the base-year price level change, or identify any fallacies if an option suggested no change or a decrease.

ECON1002 Introductory Macroeconomics

If the consumer price index increased from 1.52 to 1.65, then it must be the case that ______ relative to prices in the base year.

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