Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To determine the average income of consumers
B
To compare price changes over time
C
To measure the productivity of different sectors
D
To analyze consumer behavior patterns
Understanding the Answer
Let's break down why this is correct
Answer
The primary purpose of establishing a base year in the Consumer Price Index (CPI) is to create a point of reference for measuring changes in prices over time. By setting a base year, economists can compare the cost of a fixed basket of goods and services in that year to the costs in future years. This helps to show how inflation or deflation affects purchasing power and the cost of living. For example, if the base year is 2010 and the CPI in 2010 is set to 100, and in 2023 it rises to 130, this indicates that prices have increased by 30% since 2010. Overall, using a base year allows for clearer understanding and analysis of economic trends related to consumer prices.
Detailed Explanation
The base year helps us see how prices change over time. Other options are incorrect because Some might think the base year shows how much money people earn; This option might seem right, but the base year doesn't measure how much stuff is made.
Key Concepts
base year
Topic
Understanding Consumer Price Index
Difficulty
easy level question
Cognitive Level
understand
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