The Consumer Price Index (CPI) Is Calculated

question 31

Multiple Choice

The consumer price index (CPI) is calculated

• A) using a fixed basket of goods and, therefore, will tend to understate inflation.
• B) using a fixed basket of goods and, therefore, will tend to overstate inflation.
• C) using a constantly changing basket of goods and, therefore, will tend to understate inflation.
• D) using a constantly changing basket of goods and, therefore, will tend to overstate inflation.

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Definitions:

Lending

The act of providing funds to another party with the expectation that the funds will be repaid, often with interest, over a specified period of time.

Excess Reserves

Funds that banks hold over and above the legal requirements, which can influence their ability to lend.

Deposits

Funds placed into an account at a financial institution for safekeeping and to earn interest.

Excess Reserves

Excess reserves are the funds that banks hold over and above the required minimum reserves mandated by central banking regulations, often stored in central banks.