CPI POST TEST REVIEW SCRIPT
COMPLETE ANSWERS GRADED A+
◉ What is the second key difference between CPI and GDP
deflator?
Answer: CPI uses a fixed basket of goods, while GDP deflator uses
a changing basket based on currently produced goods.
◉ What happens to the CPI when the price of oranges skyrockets
due to crop failure?
Answer: CPI rises significantly because oranges are included in
the fixed basket of goods.
◉ What is the relationship between CPI and GDP deflator over
time?
Answer: They generally move together, but can diverge due to
specific price changes.
◉ What caused the CPI inflation to spike in 1979 and 1980?
Answer: Oil prices more than doubled during these years.
◉ What does a fixed basket of goods in CPI imply?
Answer: It does not account for changes in consumer preferences
or new goods introduced in the market.
,◉ Why is it challenging to measure quality changes in goods?
Answer: Quality is subjective and difficult to quantify accurately.
◉ What adjustments did the BLS make in response to criticisms of
CPI?
Answer: They adopted technical changes to improve the accuracy
of the CPI.
◉ What is the impact of CPI measurement problems on Social
Security benefits?
Answer: Benefits are adjusted based on CPI, which may not
accurately reflect true inflation.
◉ How does the CPI's fixed basket affect its responsiveness to
economic changes?
Answer: It may lag behind actual consumer experiences during
significant economic shifts.
◉ What is the significance of the GDP deflator's changing basket
of goods?
Answer: It reflects current production and consumption patterns,
providing a more accurate measure of inflation.
◉ What does the CPI not reflect regarding the introduction of new
goods?
, Answer: It does not account for the increase in the value of the
dollar due to new choices available to consumers.
◉ What is the effect of price changes in consumer goods on the
CPI?
Answer: Price increases in consumer goods directly affect the CPI,
reflecting higher living costs.
◉ How does the BLS attempt to maintain constant quality in the
CPI?
Answer: By adjusting prices based on quality improvements or
deteriorations.
◉ What is a potential consequence of the CPI overstating
inflation?
Answer: It can lead to misallocation of resources and incorrect
policy decisions.
◉ Why might the CPI and GDP deflator diverge during certain
economic conditions?
Answer: Due to differing impacts of price changes on consumer
goods versus overall production.
◉ What is the role of the BLS in calculating the CPI?
Answer: The Bureau of Labor Statistics collects data and adjusts
the basket of goods to reflect consumer spending.
COMPLETE ANSWERS GRADED A+
◉ What is the second key difference between CPI and GDP
deflator?
Answer: CPI uses a fixed basket of goods, while GDP deflator uses
a changing basket based on currently produced goods.
◉ What happens to the CPI when the price of oranges skyrockets
due to crop failure?
Answer: CPI rises significantly because oranges are included in
the fixed basket of goods.
◉ What is the relationship between CPI and GDP deflator over
time?
Answer: They generally move together, but can diverge due to
specific price changes.
◉ What caused the CPI inflation to spike in 1979 and 1980?
Answer: Oil prices more than doubled during these years.
◉ What does a fixed basket of goods in CPI imply?
Answer: It does not account for changes in consumer preferences
or new goods introduced in the market.
,◉ Why is it challenging to measure quality changes in goods?
Answer: Quality is subjective and difficult to quantify accurately.
◉ What adjustments did the BLS make in response to criticisms of
CPI?
Answer: They adopted technical changes to improve the accuracy
of the CPI.
◉ What is the impact of CPI measurement problems on Social
Security benefits?
Answer: Benefits are adjusted based on CPI, which may not
accurately reflect true inflation.
◉ How does the CPI's fixed basket affect its responsiveness to
economic changes?
Answer: It may lag behind actual consumer experiences during
significant economic shifts.
◉ What is the significance of the GDP deflator's changing basket
of goods?
Answer: It reflects current production and consumption patterns,
providing a more accurate measure of inflation.
◉ What does the CPI not reflect regarding the introduction of new
goods?
, Answer: It does not account for the increase in the value of the
dollar due to new choices available to consumers.
◉ What is the effect of price changes in consumer goods on the
CPI?
Answer: Price increases in consumer goods directly affect the CPI,
reflecting higher living costs.
◉ How does the BLS attempt to maintain constant quality in the
CPI?
Answer: By adjusting prices based on quality improvements or
deteriorations.
◉ What is a potential consequence of the CPI overstating
inflation?
Answer: It can lead to misallocation of resources and incorrect
policy decisions.
◉ Why might the CPI and GDP deflator diverge during certain
economic conditions?
Answer: Due to differing impacts of price changes on consumer
goods versus overall production.
◉ What is the role of the BLS in calculating the CPI?
Answer: The Bureau of Labor Statistics collects data and adjusts
the basket of goods to reflect consumer spending.
