CPI COMPREHENSIVE EXAMINATION TEST QUESTIONS AND SOLUTIONS FULLY VERIFIED

CPI COMPREHENSIVE EXAMINATION TEST
QUESTIONS AND SOLUTIONS FULLY
VERIFIED

●● What is the primary definition of the CPI?
Answer: A measure of the overall cost of the goods and services bought
by a typical consumer


●● Which organization computes and reports the CPI?
Answer: The Bureau of Labor Statistics (BLS)


●● What is the first step in calculating the CPI?
Answer: Survey consumers to determine a fixed basket of goods and
services


●● What is the second step in calculating the CPI?
Answer: Find the prices of each good and service in the basket at each
point in time


●● What is the third step in calculating the CPI?
Answer: Compute the cost of the basket of goods for each year

, ●● What is the fourth step in calculating the CPI?
Answer: Choose a base year and compute the CPI for each year


●● What is the fifth step in calculating the CPI?
Answer: Use the CPI to compute the inflation rate from the previous
year


●● What is the CPI value for the base year?
Answer: 100


●● What is the 'substitution bias' in the CPI?
Answer: The failure to account for consumers switching to cheaper
goods when prices rise, leading to an overstatement of the cost of living


●● How does the introduction of new goods affect the CPI?
Answer: It creates a bias because the fixed basket does not reflect the
increased variety and purchasing power consumers gain from new
products


●● How do unmeasured quality changes affect the CPI?
Answer: If quality improves but prices stay the same, the value of the
dollar increases; if quality declines, the value decreases, which is
difficult for the BLS to measure