Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year. In 2002, the basket's cost was $50, in 2004, the basket's cost was $52 and in 2006, the basket's cost was $54.60. The value of the CPI in 2006 was a. 91.6 b. 95.2. c. 105.0. d. 109.2 5.

c. The value of CPI in 2006 is 105.

Explanation:

The CPI or consumer price index is used to calculate and trace the inflation in an economy by taking a selected basket of goods and tracking the changes in their prices overtime.

The base year is assigned a value of 100 and changes are measured from this year. The base year price os basket was 52 and the value of base year is 100.

The value of CPI in 2006 is = (54.6 / 52) *100 = 105

C. 105.0

Explanation:

Given that

In 2002, basket cost = 50

In 2004, basket cost = 52

In 2006, basket cost = 54.6

Value of CPI in 2006 = (Cost of basket in 2006/cost of basket in 2004) × 100

= (54.6/52) × 100

= 1.05 × 100

= 105

Therefore, consumer price index in 2006 is 105.0

Note that, CPI measures changes in price of weighted average market basket of goods purchased by consumers or households in an economy.

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