Which one of the following statements regarding the construction, calculation, and properties of the Consumer Prices Index (CPI) is correct?
If the CPI index level falls from 125 to 120 over a twelve-month period, the annual rate of inflation for that period is −5%-5\%−5%.
Changing the CPI's base year and resetting its value to 100 alters the calculated annual inflation rates because the absolute index values are modified.
Because CPI weights are based on total aggregate household expenditure, the spending habits of higher-income households have a larger influence on the index weights than those of lower-income households.
To ensure long-term comparability, the representative basket of goods and services is kept completely constant, with weights adjusted only once every ten years.
187 exam-style questions on AQA A Level Economics 2.1 The measurement of macroeconomic performance, covering 2.1.1 The objectives of government economic policy, 2.1.2 Macroeconomic indicators, 2.1.3 Uses of index numbers, and 2.1.4 Uses of national income data (A-level only). Each one has a worked solution and a mark scheme showing where the marks go.