CPI

Question 1

what is CPI

Answer 1

Consumer price Index

Question 2

what is the current price index

Answer 2

the current main measure of inflation in the UK

Question 3

what is the equation for CPI

Answer 3

CPI = total cost of basket in year 2 / total cost of basket in base year x 100

Question 4

if inflation is above 100 e.g. 140 what is the CPI

Answer 4

40%

Question 5

how do you calculate CPI

Answer 5

• use base year of prices
• use the representative basket
• multiply weights by price changes
• the weighted price changes and then added to calculate the inflation rate
• this is the CPI

Question 6

what are the limitations of CPI

Answer 6

• not fully representative - inaccurate for non typical households
• households have different spending patterns
• changing quality of goods and services is not considered - could be the reason for price change
• CPI basket is slow too respond to new goods and services
• ignores regional differences in the cost of living - inflation varies throughout the country so affects people differently

Question 7

what is RPI

Answer 7

is a measure of inflation that includes mortgage interest payments and council tax