Figure 1.7: US Consumer Price Index (2010-2022)

An economy's standard consumer basket contains 10 pizzas and 5 books. In the base year, a pizza costs $10 and a book costs $20. In the following year, the price of a pizza increases to $12 and the price of a book increases to $21. Using the base year as the reference, what is the value of the price index in the second year?

Critique of a Price Index Calculation

An economist wants to construct a price index to measure changes in the cost of living. Arrange the fundamental steps for this process in the correct chronological order.

Interpreting a Price Index Value

A price index is constructed for an economy where consumers only buy two goods: bread and cheese. The base year is selected, and the index is set to 100. In the next year, the price of bread increases by 20%, while the price of cheese decreases by 20%. Which of the following statements about the price index for the second year is correct?

Evaluating the Choice of a Base Year for a Price Index

An economy uses Year 1 as the base period for its price index, setting the index value to 100. In Year 2, the index is 110, and in Year 3, the index is 121. Based on this information, what was the percentage increase in the overall price level between Year 2 and Year 3?

A price index is calculated with Year 1 as the base year, setting its value to 100. In Year 5, the index value is 120. If this index is re-calculated using Year 5 as the new base year (setting its value to 100), the new index value for Year 1 would be approximately 83.3.

Analysis of Divergent Price Indices

Analyzing Discrepancies in Price Indices

Similarity in Constructing CPI and Nominal Wage Index