Chapter 7 (The CPI and the Cost of Living) – Flashcards
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Who calculates the Consumer Price Index?
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Bureau of Labor Statistics calculates the CPI every month.
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What does CPI stand for?
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Consumer Price Index
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What is the CPI?
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Measures the changes of the average of the prices paid by urban consumers for a fixed market basket of consumption goods and services.
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What does the CPI measure?
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The average prices paid by consumers for a fixed basket of goods and services.
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To measure the CPI the BLS economic assistants check the prices of...
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About 80,000 goods and services every month.
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What is the good or service given the most weight in the CPI?
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Housing
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What is the formula for the CPI?
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(Cost of CPI market basket at current period prices / Cost of CPI market basket at base period prices) x 100
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When the cost of the CPI market basket increases from one year to the next, we know that...
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the prices of the goods and services contained in the CPI market basket have increased on the average.
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Suppose the CPI for this year is 133.7. This number means that ...
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prices rose 33.7 percent over the base year.
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What is the Reference Base Period?
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A period for which the CPI is defined to equal 100.
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What is the current Reference Base Period?
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1982-1984
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What are the three stages of constructing the CPI?
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1. Selecting the CPI market basket
2. Conducting the monthly price survey
3. Calculating the CPI
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What does the inflation rate measure?
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Percentage change in the CPI from one year to the next.
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If the CPI decreases from one year to the next, then the inflation rate is...
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negative
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What is the inflation rate equation?
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Inflation Rate = (CPI in current year - CPI in previous) / CPI in previous year x 100
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What is deflation?
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When the inflation is negative and the price level is falling.
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What is the cost of living index?
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The measure of the change in the amount of money that people need to spend to achieve a given standard of living.
