Question

Based on the weight of the consumer price index (CPI), the price of rental housing increases by 15% and that of owned housing by 5%. During the same year, the price of gasoline falls by 22%. We can say that: a. the CPI would definitely rise during the year in question. b. all other factors being constant, it is likely the CPI would fall during the year in question. c. the CPI would definitely fall during the year in question. d. all other factors being constant, it is likely the CPI would rise during the year in question. e. all other factors being constant, the CPI would change by about 6% because that is the average housing change plus the average gasoline change.

Answer 1

Answer:

D) all other factors being constant, it is likely the CPI would rise during the year in question.

Explanation:

The CPI measures the price of a basket of goods and that basket includes both housing expenses and gasoline, but housing expenses are "heavier" than gasoline (their relative weight on the CPI is much higher) because they represent a much larger portion of a household's income. It is common for a family to pay $1,000 (or much more) per month on rent or a mortgage, while how many people actually spend over $1,000 per month on gas?