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Price Indices and Inflation

AP Macro - 2.4AP Micro - 2.4

CPI measures the cost of a fixed basket of consumer goods; CPI = (cost in current year / cost in base year) × 100. Inflation rate = ((CPI₂ - CPI₁) / CPI₁) × 100.

Ultimate Flashcard Review

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Key Concepts to Understand

Question 1 of 5

Suppose the inflation rate in a country was 7% in 2023, 4% in 2024, and 2% in 2025. Which economic term best describes this trend?

Deflation

Stagflation

Hyperinflation

Disinflation

Practice Questions: Test Your Understanding

Apply what you've learned with these practice questions. These questions test your understanding of the key concepts.

Question 1 of 3

If the Consumer Price Index (CPI) was 150 in Year 1 and 165 in Year 2, the inflation rate between Year 1 and Year 2 was:

Key Takeaways

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CPI: (Cost of basket this year / Cost of basket base year) × 100; base year = 100.
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Inflation rate: ((CPI later - CPI earlier) / CPI earlier) × 100. Use it to deflate nominal values to real.
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GDP deflator uses all goods in GDP; CPI uses a consumer basket. Both can measure inflation.