Inflation 101: here's what it means and how it is calculated

The video explains inflation, describing it as the increase in the cost of living, which makes the dollar feel weaker. It highlights that some inflation is beneficial, targeting around 2% for economic stability. Inflation is measured using three metrics: the Personal Consumption Expenditures Price Index (PCE), the Consumer Price Index (CPI), and the Producer Price Index (PPI). Each metric provides insights into different aspects of price changes. The video concludes by emphasizing that inflation means higher prices without an increase in wealth.

What analogy is used to describe the effect of inflation on the value of money?

• A balloon getting bigger

• A gym workout with added weights

• A car running out of fuel

• A tree growing taller

What is the target inflation rate according to the Federal Open Market Committee?

• 4%

• 1%

• 2%

• 3%

Which index is considered the most accurate barometer of inflation by the Fed?

• Consumer Price Index (CPI)

• Producer Price Index (PPI)

• Personal Consumption Expenditures Price Index (PCE)

• Gross Domestic Product (GDP)

What does the Consumer Price Index (CPI) measure?

• The change in prices paid by producers

• The change in prices paid by consumers for goods and services

• The change in prices of imported goods

• The change in prices of luxury items

What does the Producer Price Index (PPI) indicate?

• The cost of living for consumers

• The prices companies pay for supplies

• The average income of producers

• The cost of imported goods