Chapter 3

Question 1

Consumer Price Index (CPI)

Answer 1

Measures typical consumers cost of living

Question 2

CPI CALCULATION STEP 1;

Answer 2

Determine the “basket”

Question 3

CPI CALCULATION STEP 2;

Answer 3

Find the prices: Of all goods in the “basket”

Question 4

CPI CALCULATION STEP 3;

Answer 4

Compute the basket cost: Find total cost of basket

Question 5

CPI CALCULATION STEP 4;

Answer 5

Choose a base year:

(100 X CURRENT YEAR DIVIDED BY BASE YEAR)

Question 6

CPI CALCULATION STEP 5;

Answer 6

Compute the inflation rate: Percentage change in the CPI from preceding year

(Inflation Rate = (CPI this year - CPI last year) DIVIDED BY CPI LAST YEAR X 100