CPI ACTUAL EXAM FULL QUESTIONS AND
CORRECT ANSWERS GRADED A PLUS
●● How is the CPI calculated?
Answer: CPI = (Cost of basket in current year / Cost of basket in base
year) × 100.
●● What does a CPI of 125 indicate?
Answer: The cost of living in the current year is 25% higher than in the
base year.
●● What is the CPI for the base year?
Answer: The CPI for the base year is always 100.
●● What is core inflation?
Answer: Core inflation is the CPI excluding energy and food prices.
●● What is the definition of inflation?
Answer: The annual percentage change in the price level.
●● How is the rate of inflation calculated?
, Answer: Rate of inflation = (Current CPI - Previous CPI) / Previous CPI
× 100.
●● What is deflation?
Answer: A period of negative inflation rates, indicating falling prices.
●● What is the difference between nominal and real quantities?
Answer: Nominal quantities are measured in current dollar value, while
real quantities are measured in physical terms.
●● How do you convert a nominal quantity to a real quantity?
Answer: Divide the nominal quantity by the price index expressed as a
fraction (CPI/100).
●● What does indexing do?
Answer: Indexing increases a nominal quantity each period by the
percentage increase in a specified price index.
●● What is the effect of indexing on Social Security payments?
Answer: Indexing adjusts Social Security payments automatically based
on inflation without needing Congressional action.
●● What is the real wage?
CORRECT ANSWERS GRADED A PLUS
●● How is the CPI calculated?
Answer: CPI = (Cost of basket in current year / Cost of basket in base
year) × 100.
●● What does a CPI of 125 indicate?
Answer: The cost of living in the current year is 25% higher than in the
base year.
●● What is the CPI for the base year?
Answer: The CPI for the base year is always 100.
●● What is core inflation?
Answer: Core inflation is the CPI excluding energy and food prices.
●● What is the definition of inflation?
Answer: The annual percentage change in the price level.
●● How is the rate of inflation calculated?
, Answer: Rate of inflation = (Current CPI - Previous CPI) / Previous CPI
× 100.
●● What is deflation?
Answer: A period of negative inflation rates, indicating falling prices.
●● What is the difference between nominal and real quantities?
Answer: Nominal quantities are measured in current dollar value, while
real quantities are measured in physical terms.
●● How do you convert a nominal quantity to a real quantity?
Answer: Divide the nominal quantity by the price index expressed as a
fraction (CPI/100).
●● What does indexing do?
Answer: Indexing increases a nominal quantity each period by the
percentage increase in a specified price index.
●● What is the effect of indexing on Social Security payments?
Answer: Indexing adjusts Social Security payments automatically based
on inflation without needing Congressional action.
●● What is the real wage?
