WorksheetsConsumer Price Index (CPI) Worksheet
Total questions: 15
Worksheet time: 8mins
The primary purpose of the Consumer Price Index (CPI) is to measure the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
True
False
Which of the following is NOT a major category typically included in the CPI basket of goods and services?
Housing
Transportation
Government infrastructure spending
Food and beverages
The CPI is calculated by tracking the prices of a fixed basket of goods and services purchased by a representative sample of households.
True
False
If the CPI increases from 120 in one year to 126 in the next year, the rate of inflation during that period is:
5%
6%
126%
0.05%
A CPI of 100 indicates that the current period's prices are higher than the base year prices.
True
False
Which of the following is a limitation of the CPI as a perfect measure of the cost of living?
It accurately reflects price changes for all income levels.
It fully accounts for changes in the quality of goods and services.
It may not capture the substitution effect when consumers switch to relatively cheaper goods.
It includes the prices of all goods and services produced in an economy.
The base year in CPI calculations serves as the reference point against which price changes are measured, and its index value is typically set at:
0
1
10
100
If the CPI decreases over time, this indicates:
Inflation
Deflation
Stagflation
Economic growth
Rent and homeowners' equivalent rent are significant components of which major CPI category?
Transportation
Food and beverages
Housing
Medical care
The CPI accurately reflects the spending patterns of all households, regardless of their geographic location or demographics.
True
False
Suppose the cost of the CPI basket in the base year was 500.Inthecurrentyear,thesamebasketcosts 575. What is the CPI for the current year?
a) 110
b) 115
c) 125
d) 130
An increase in the price of gasoline will have no direct impact on the CPI because energy prices are excluded from the basket.
True
False
Which of the following is a potential bias in the CPI that can overstate the true rate of inflation?
Outlet bias, where the CPI doesn't fully capture discounts at new retail outlets.
Substitution bias, where consumers switch to cheaper alternatives not fully reflected.
New goods bias, where the CPI quickly incorporates prices of new products.
Quality change bias, where price increases due to improved product quality are not fully accounted for.
If the CPI in Year 1 was 150 and in Year 2 it was 154.5, what was the inflation rate between Year 1 and Year 2?
3%
4.5%
0.03%
0.045%
The CPI is primarily used by businesses to make decisions about production levels and investment strategies.
True
False
