Skip to main content
Pearson+ LogoPearson+ Logo

Inflation and Consumer Price Index (CPI) quiz #1 Flashcards

Back
Inflation and Consumer Price Index (CPI) quiz #1
Control buttons has been changed to "navigation" mode.
1/10
  • What does the annual inflation rate measure the percentage growth rate of in an economy?
    The annual inflation rate measures the percentage growth rate of the overall price level in an economy, typically tracked using the Consumer Price Index (CPI).
  • How is the inflation rate defined in macroeconomics?
    The inflation rate is defined as the percentage change in the price level from one year to the next, calculated as (CPI in current year - CPI in previous year) / (CPI in previous year) × 100.
  • How does inflation affect purchasing power?
    Inflation reduces purchasing power because as the general price level rises, each unit of currency buys fewer goods and services.
  • Typically, what does high inflation indicate about an economy?
    Typically, high inflation is a sign of rapidly rising prices across the economy, which can indicate economic instability or overheating.
  • Typically, what does low inflation indicate about an economy?
    Typically, low inflation is a sign of stable prices and can indicate economic stability, but if too low, it may also signal weak demand or slow economic growth.
  • What does the inflation rate indicate in macroeconomics?
    The inflation rate indicates how much the overall price level in an economy has increased over a specific period, reflecting changes in the cost of living.
  • How is the Consumer Price Index (CPI) calculated?
    The Consumer Price Index (CPI) is calculated as (Cost of the basket of goods in the current year / Cost of the basket in the base year) × 100.
  • Why can't changes in the price of a single product be used to determine if there is inflation in the economy?
    Inflation refers to a general rise in prices across the entire economy, not just one product. Changes in a single product's price may not reflect overall price level changes.
  • What is the significance of the base year when calculating the Consumer Price Index (CPI)?
    The base year is used as the reference point for all CPI calculations, and its CPI is always set to 100. All other years' CPIs are calculated relative to the cost of the basket in the base year.
  • How does the government determine which goods to include in the CPI basket?
    The government surveys households to find out what goods and services they typically purchase. The results are used to create a representative basket of goods for tracking price changes over time.