Question

The following are the Consumer Price Index (CPI) for the years 1991-1993. All of the values use a reference year of 1986.

Year CPI
1991 110
1992 120
1993 135

Which of the following is true about the CPI, based on the information?

a. $100 in 1986 would be equivalent to $135 in 1993.
b. $100 in 1992 would have been worth $100 in 1986.
c. $100 in 1991 would have been worth $110 in 1986.
d. $100 in 1993 would be equivalent to $120 in 1992.

Answer 1

1986 is the base year. so, the CPI of the base year is always 100%.

Option A

The value of $100 in 1993 would be = ($100/CPI of 1986) * CPI of 1993

= ($100/100) * 135

= $135

So, Option A is true.

Option B

$100 in 1992 would have been worth in 1986: ($100/CPI of 1992) * CPI of 1986

= ($100/120) * 100

= $83.33

So, Option B is false.

Option C

$100 in 1991 would have been worth in 1986: ($100/CPI of 1991) * CPI of 1986

= ($100/110) * 100

= $90.91

So, Option C is false.

Option D

The value of $100 in 1992 would be: ($100/CPI of 1993) * CPI of 1992

= ($100/135 * 120

= $88.89

So, Option D is false.