CPI THIRD (3RD) EDITION
COMPREHENSIVE STUDY GUIDE 2026
FULL QUESTIONS AND SOLUTIONS
GRADED A+
◍ CPI.
Answer: Consumer Price Index, calculated monthly and annually by the
Bureau of Labor Statistics.
◍ Core CPI.
Answer: CPI excluding food and energy.
◍ PPI.
Answer: Producer Price Index, measures prices of the output of domestic
producers.
◍ What does the Consumer Price Index (CPI) measure?.
Answer: The typical consumer's cost of living.
◍ CPI basket.
Answer: Composition of goods in the CPI, including categories like Housing
(42%), Transportation (15.8%), Food + Drink (14.5%), Medical care
(8.9%), Education + Communication (7.6%), Recreation (5.6%), Apparel
(2.3%), Other goods (5.3%).
◍ Cost of living.
Answer: Amount by which income must rise in order to maintain a constant
standard of living.
◍ What is the purpose of the CPI?.
Answer: It serves as the basis for cost of living adjustments (COLAs) in
contracts and Social Security.
, ◍ What is the first step in calculating the CPI?.
Answer: Fix the 'basket' by surveying consumers to determine typical goods.
◍ Substitution bias.
Answer: One of the three problems with using CPI to measure inflation.
◍ How does the Bureau of Labor Statistics (BLS) calculate the CPI?.
Answer: By finding prices of goods in the basket and computing the total
cost.
◍ What is the formula for computing the CPI in any year?.
Answer: CPI = 100 x (Cost of basket in current year / Cost of basket in base
year).
◍ Introduction of new goods.
Answer: One of the three problems with using CPI to measure inflation.
◍ Unmeasured quality change.
Answer: One of the three problems with using CPI to measure inflation.
◍ GDP deflator.
Answer: The ratio of nominal GDP to real GDP.
◍ Nominal GDP.
Answer: Current output valued at current prices.
◍ Real GDP.
Answer: Current output valued at base year prices.
◍ Indexed.
Answer: Automatically adjusted for inflation.
◍ How is the inflation rate calculated from the CPI?.
Answer: It is the percentage change in the CPI from the preceding period.
◍ What was the CPI for the year 2021 if the cost of the basket was $69?.
Answer: CPI in 2021 = 100 x ($69/$60) = 115.
◍ What was the inflation rate from 2021 to 2022 if CPI in 2022 was 175?.
COMPREHENSIVE STUDY GUIDE 2026
FULL QUESTIONS AND SOLUTIONS
GRADED A+
◍ CPI.
Answer: Consumer Price Index, calculated monthly and annually by the
Bureau of Labor Statistics.
◍ Core CPI.
Answer: CPI excluding food and energy.
◍ PPI.
Answer: Producer Price Index, measures prices of the output of domestic
producers.
◍ What does the Consumer Price Index (CPI) measure?.
Answer: The typical consumer's cost of living.
◍ CPI basket.
Answer: Composition of goods in the CPI, including categories like Housing
(42%), Transportation (15.8%), Food + Drink (14.5%), Medical care
(8.9%), Education + Communication (7.6%), Recreation (5.6%), Apparel
(2.3%), Other goods (5.3%).
◍ Cost of living.
Answer: Amount by which income must rise in order to maintain a constant
standard of living.
◍ What is the purpose of the CPI?.
Answer: It serves as the basis for cost of living adjustments (COLAs) in
contracts and Social Security.
, ◍ What is the first step in calculating the CPI?.
Answer: Fix the 'basket' by surveying consumers to determine typical goods.
◍ Substitution bias.
Answer: One of the three problems with using CPI to measure inflation.
◍ How does the Bureau of Labor Statistics (BLS) calculate the CPI?.
Answer: By finding prices of goods in the basket and computing the total
cost.
◍ What is the formula for computing the CPI in any year?.
Answer: CPI = 100 x (Cost of basket in current year / Cost of basket in base
year).
◍ Introduction of new goods.
Answer: One of the three problems with using CPI to measure inflation.
◍ Unmeasured quality change.
Answer: One of the three problems with using CPI to measure inflation.
◍ GDP deflator.
Answer: The ratio of nominal GDP to real GDP.
◍ Nominal GDP.
Answer: Current output valued at current prices.
◍ Real GDP.
Answer: Current output valued at base year prices.
◍ Indexed.
Answer: Automatically adjusted for inflation.
◍ How is the inflation rate calculated from the CPI?.
Answer: It is the percentage change in the CPI from the preceding period.
◍ What was the CPI for the year 2021 if the cost of the basket was $69?.
Answer: CPI in 2021 = 100 x ($69/$60) = 115.
◍ What was the inflation rate from 2021 to 2022 if CPI in 2022 was 175?.
