This is all the data you have: The CPI today (at any point in time--whenever \"t

Question

This is all the data you have:   The CPI today (at any point in time--whenever "today" may be) stands at 251.6, this should be interpreted to mean that:

This is all the data you have:   The CPI today (at any point in time--whenever "today" may be) stands at 251.6, this should be interpreted to mean that:

Student Answer: prices have risen 251.6% since the base period the economy currently is experiencing inflation that representative bundle of goods and services that would have cost $10 in the base period would now cost $25.16 all the above are correct interpretations

Explanation / Answer

CPI measures a change in the market value of a basket of goods and services in the 'study period' in comparison to its value in the 'base period'. Thus, it gives a clear indication of changing prices in an economy (inflation or deflation).

However, to estimate the correct measure of inflation, the base year has to be ascertained to make a comparison to the prices prevailing the study period. The base year is not necessarily the same for all nations or for all years. It is changed according to prolonging change in prices.

Thus, a CPI of 251.6 indicates that the prices have risen. However, it is not certain as to what the base year price is taken to arrive at this figure.

Therefore, options a, c and d are eliminated. And the correct answer is option b. the economy currently is experiencing inflation.

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