Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can define the CPI and explain what it measures about a household’s standard of living. (Guide: “The consumer price index (CPI)”)
- I can explain why the market basket must stay fixed and why the base year has an index of 100. (Guide: “The consumer price index (CPI)”; Practice Q1)
- I can define inflation, deflation and disinflation and tell them apart from data. (Guide: “Why we need a price index”; Practice Q3, Q6(d))
- I can explain the difference between a nominal and a real variable. (Guide: “Using an index to compare values across years”)
Calculation
- I can calculate the cost of a market basket and turn it into a CPI. (Guide: Worked example 1; Practice Q1, Q6)
- I can calculate an inflation rate from two index numbers, dividing by the earlier one. (Practice Q2, Q6(c))
- I can convert a nominal wage into a real wage and find the percentage change in the real wage. (Guide: Worked example 2; Practice Q5)
- I can express a price from one year in another year’s money using the ratio of the indices. (Practice Q7(a))
Reasoning
- I can decide whether a worker’s purchasing power rose or fell, and support it with a calculation. (Guide: Worked example 2; Practice Q5, Q7(b))
- I can explain substitution bias, and use quality changes or new goods as further reasons the CPI may overstate inflation. (Guide: “Why the CPI may overstate inflation”; Practice Q4, Q6(e), Q7(c))
All ticked? Move on to Topic 2.5, Costs of Inflation, or return to the course roadmap.