Question

The following are the Consumer Price Index (CPI) for the years 1990-1992. All of the values use a reference year of 1985.

Year: 1990; CPI: 114
Year: 1991; CPI: 130
Year: 1992; CPI: 145

Which of the following is true about the CPI, based on the information?
a.) $100 in 1985 would be equivalent to $145 in 1992.
b.) $100 in 1992 would be equivalent to $130 in 1991.
c.) $100 in 1990 would have been worth $114 in 1985.
d.) $100 in 1991 would have been worth $100 in 1990.

Answer 1

The correct option regarding the CPI data from 1990 to 1992 is a.) $100 in 1985 would be equivalent to $145 in 1992. This statement is true as it reflects the change in purchasing power using the CPI where the value of money decreases with time due to inflation.

Step-by-step explanation:

The Consumer Price Index (CPI) is used to gauge the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Looking at the provided CPI data for the years 1990 to 1992 with a reference year of 1985, we can analyze the purchasing power of $100 at different times.

Here is the breakdown of each statement:

• a.) $100 in 1985 would be equivalent to $145 in 1992. This is true because the CPI for 1992 is 145, implying that what $100 bought in 1985, now costs $145.
• b.) $100 in 1992 would be equivalent to $130 in 1991. This statement is false since the CPI increased from 130 in 1991 to 145 in 1992, which means that the value of $100 would decrease, not stay the same.
• c.) $100 in 1990 would have been worth $114 in 1985. This is false, the correct interpretation is that $100 in 1985 would be worth $114 in 1990 due to inflation.
• d.) $100 in 1991 would have been worth $100 in 1990. This is also false since the CPI increased from 114 in 1990 to 130 in 1991, so $100 in 1990 would not have the same purchasing power as $100 in 1991.

Therefore, the correct option is a.) $100 in 1985 would be equivalent to $145 in 1992.