Final answer:
The Consumer Price Index (CPI) of 254 for the year 2021, with 1983 as the base year, means that the price level has increased such that what cost $100 in 1983 would cost $254 in 2021. The CPI represents the average change in prices over time, comparatively stating the price change as a factor of the base year's index which is always 100.
Step-by-step explanation:
When considering the Consumer Price Index (CPI) for a given year, if 1983 is the base year and the CPI for 2021 is 254, this means that what cost $100 in 1983, on average, would cost $254 in the year 2021. This is not to be mistaken for a cost 254 times higher or a specific dollar amount more. Instead, the CPI serves as an index to indicate the average change in prices over time by using a base year for comparison.
Therefore, the correct interpretation is that the value of the index implies that the general price level has increased by a factor that makes the cost of items that were $100 in the base year scale up to $254 in the index year. This percentage change is calculated by taking the new CPI value minus the base year's CPI value, divided by the base year's CPI value, and then converting it to a percentage.