CPI UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS COMPLETE STUDY
GUIDE
●● What is the purpose of the Consumer Price Index (CPI)?
Answer: To measure the overall cost of the goods and services bought by
a typical consumer.
●● How is the CPI used in relation to the cost of living?
Answer: It monitors changes in the cost of living over time.
●● What happens when the CPI rises?
Answer: The typical family has to spend more money to maintain the
same standard of living.
●● What does the term inflation refer to?
Answer: A situation in which the economy's overall price level is rising.
●● How is the inflation rate calculated?
Answer: It is the percentage change in the price level from the previous
period.
,●● What is the significance of the inflation rate reported in the news?
Answer: It is calculated from the CPI and reflects the goods and services
bought by consumers.
●● Who computes and reports the CPI?
Answer: The Bureau of Labor Statistics (BLS), part of the Department
of Labor.
●● What does the BLS include when constructing the CPI?
Answer: All the goods and services that the typical consumer buys.
●● What is the largest category in the CPI's basket of goods and
services?
Answer: Housing, which makes up 42 percent of the typical consumer's
budget.
●● What percentage of the typical consumer's budget is allocated to
transportation?
Answer: 16 percent.
●● What is the core CPI?
Answer: The CPI for all goods and services excluding food and energy.
, ●● Why is the core CPI considered more stable?
Answer: Because food and energy prices show substantial short-run
volatility.
●● What is the producer price index (PPI)?
Answer: An index that measures the cost of a basket of goods and
services bought by firms rather than consumers.
●● What are the five steps the BLS follows to calculate the CPI?
Answer: 1. Fix the basket 2. Find the prices 3. Compute the cost of the
basket 4. Choose a base year and compute the index 5. Compute the
inflation rate.
●● What is the first step in calculating the CPI?
Answer: Fix the basket by determining which prices are most important
to the typical consumer.
●● How does the BLS determine the weights for goods in the CPI?
Answer: By surveying consumers to find the basket of goods and
services bought by the typical consumer.
●● What is the formula for calculating the CPI?
Answer: CPI = (Price of basket in current year / Price of basket in base
year) * 100.
CORRECT ANSWERS COMPLETE STUDY
GUIDE
●● What is the purpose of the Consumer Price Index (CPI)?
Answer: To measure the overall cost of the goods and services bought by
a typical consumer.
●● How is the CPI used in relation to the cost of living?
Answer: It monitors changes in the cost of living over time.
●● What happens when the CPI rises?
Answer: The typical family has to spend more money to maintain the
same standard of living.
●● What does the term inflation refer to?
Answer: A situation in which the economy's overall price level is rising.
●● How is the inflation rate calculated?
Answer: It is the percentage change in the price level from the previous
period.
,●● What is the significance of the inflation rate reported in the news?
Answer: It is calculated from the CPI and reflects the goods and services
bought by consumers.
●● Who computes and reports the CPI?
Answer: The Bureau of Labor Statistics (BLS), part of the Department
of Labor.
●● What does the BLS include when constructing the CPI?
Answer: All the goods and services that the typical consumer buys.
●● What is the largest category in the CPI's basket of goods and
services?
Answer: Housing, which makes up 42 percent of the typical consumer's
budget.
●● What percentage of the typical consumer's budget is allocated to
transportation?
Answer: 16 percent.
●● What is the core CPI?
Answer: The CPI for all goods and services excluding food and energy.
, ●● Why is the core CPI considered more stable?
Answer: Because food and energy prices show substantial short-run
volatility.
●● What is the producer price index (PPI)?
Answer: An index that measures the cost of a basket of goods and
services bought by firms rather than consumers.
●● What are the five steps the BLS follows to calculate the CPI?
Answer: 1. Fix the basket 2. Find the prices 3. Compute the cost of the
basket 4. Choose a base year and compute the index 5. Compute the
inflation rate.
●● What is the first step in calculating the CPI?
Answer: Fix the basket by determining which prices are most important
to the typical consumer.
●● How does the BLS determine the weights for goods in the CPI?
Answer: By surveying consumers to find the basket of goods and
services bought by the typical consumer.
●● What is the formula for calculating the CPI?
Answer: CPI = (Price of basket in current year / Price of basket in base
year) * 100.
