Question

What does the CPI in the base year equal? Explain your answer.

Short answer

The CPI in the base year always equals 100 as it is the benchmark or point of reference from which changes are measured.

Step-by-step solution

Understand the concept of CPI

CPI or Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them, with the products being weighted according to their importance.

Understand the concept of Base Year

In the context of CPI, the base year is the point of reference for comparison of prices in other years. The CPI in the base year is usually set at 100, and the CPI in any other year is a percentage that shows the amount of price change relative to the base year.

CPI in Base Year

The CPI in the base year always equals 100 as the base year serves as the benchmark or point of reference from which relative changes are measured or compared.