Introduction to the Consumer Price Index

What does the Consumer-Price Index (CPI) measure?

• A statistical estimate of the change in prices for a basket of goods and services purchased by households.

• The total value of all goods and services produced in a country.

• The average income of households in a country.

• The unemployment rate in the US.

Which of the following categories are considered most important in the Consumer-Price Index (CPI) calculation?

• Apparel, Education, and Recreation

• Food & Beverages, Transportation, and Housing

• Medical Care, Other Goods and Services, and Apparel

• Recreation, Education, and Medical Care

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How frequently are items in the Consumer-Price Index (CPI) basket updated compared to the Personal-Consumption Expenditures (PCE) Price Index basket?

• CPI updates monthly, PCE updates every two years.

• CPI updates every two years, PCE updates monthly.

• Both CPI and PCE update annually.

• Both CPI and PCE update every five years.

What can happen if high inflation remains for too long?

• Consumers will stop purchasing goods and services entirely.

• Inflation can become embedded in the economy, leading to a cycle of rising wages and prices.

• The Federal Reserve will immediately lower interest rates to stimulate spending.

• The government will implement price controls on all essential goods.