Question

At a party this weekend, you and your friends are discussing the consumer price index. A friend who has not taken economics says,

"You are telling me that the CPI in 2017 was 248. That isn't possible. There is no way the inflation rate was 148 percent in 2017!"

The most appropriate response to this comment is:
I disagree. The inflation rate is the percentage increase in the CPI from year-to-year, not the base year. ( True or False )

Answer 1

The answer is: True

Step-by-step explanation:

The Consumer Price Index (CPI) measures the weighted average prices of a basket of goods. It is used to calculate how the prices of the basket of goods increases over time (inflation), and it does it by comparing them to the prices of a base year.

For example, if we use 2010 as our base year, our CPI for 2010 is 100. Then during 2011, we have a 10% inflation rate, so our CPI for 2011 is 110. During 2012, we have a 20% inflation rate, so our CPI for 2012 is 132. The CPI for 2012 (132) tells us that the inflation rate between 2012 and 2010 (which is the base year) was 32%.