If Housing Prices Increase by 25 Percent and the Price

question 1

Multiple Choice

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent,then

• A) the consumer price index (CPI)would definitely fall during the year in question because housing prices do not constitute the majority of the CPI.
• B) the consumer price index (CPI)would definitely rise during the year in question because housing prices do constitute the majority of the CPI.
• C) the consumer price index (CPI)would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI.
• D) because housing spending is considered an investment,the producer price index (PPI)but not the consumer price index (CPI)would be the only price index affected by the change.
• E) the consumer price index (CPI)would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000.

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