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Measuring Inflation with Consumer Price Index

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Measuring Inflation with Consumer Price Index

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Questions and Answers

What is the formula for calculating the inflation rate?

CP1 year (x) – CPI year (x-1) / CPI year (x-1) (correct)

CPI year (x-1) - CP1 year (x) / CP1 year (x-1)

CPI year (x-1) / CP1 year (x) - 1

CP1 year (x) / CPI year (x-1) - 1

What can lead to demand pull inflation?

High levels of government saving

Increases in money supply – easy credit (loans)/ low interest rates can lead to excessive borrowing and spending (correct)

Low levels of consumer spending

Decrease in money supply and high interest rates

What is a possible cause of cost push inflation?

Government budget surplus

Decreased production costs

Lowering of interest rates

Increase in price of oil and raw materials (correct)

In the context of inflation, what does excess demand compared to supply cause?

Increase in prices and shortages (C) Signup and view all the answers

What is the impact of governments 'printing money' to finance their overspending?

Contribution to demand pull inflation (D) Signup and view all the answers

What does the Consumer Price Index (CPI) measure?

The average prices of the goods and services that a typical consumer buys (B) Signup and view all the answers

How often is the Consumer Price Index (CPI) measured?

Every 3 months or quarter (C) Signup and view all the answers

What does the annual rate of inflation measure?

The percentage change in the CPI from one year to the next (B) Signup and view all the answers

What is reviewed every 6 years to ensure it reflects Australia’s buying habits?

The 'basket' of goods and services used to calculate the CPI (A) Signup and view all the answers

What does the increase in the general level of prices of goods and services over time refer to?

Inflation (C) Signup and view all the answers