Inflation: measuring it with the CPI and who it hurts or helps

Grade 12 Social Studies Worksheet - Challenge Me

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on loans and inflation, 1980 to 1985 (card A is BLS data; cards B and C are made up). Card A, "The CPI, 1979 to 1985". Source: BLS, CPI-U annual averages (1982–84 = 100), read Nov 14, 2026; the rise is computed from the unrounded index. Table, columns Year | CPI | Rise from the year before: 1979 | 72.6 | not shown; 1980 | 82.4 | 13.5 percent; 1981 | 90.9 | 10.3 percent; 1982 | 96.5 | 6.2 percent; 1983 | 99.6 | 3.2 percent; 1984 | 103.9 | 4.3 percent; 1985 | 107.6 | 3.6 percent. Card B, "Two loans in Town Q (made up)". Written for this sheet. Summary in our words, not a quotation: Loan P was made in January 1980 at a fixed 9 percent; the lender and borrower both expected inflation of about 8 percent a year. Loan R was made in January 1983 at a fixed 14 percent; the lender expected inflation of about 10 percent a year. The rate on each loan is fixed through 1985. Card C, "A lender's note (made up)". Written for this sheet. Summary in our words, not a quotation: a Town Q bank officer wrote in 1983 that Loan R was priced at 14 percent because inflation ran at 10.3 percent in 1981 and 6.2 percent in 1982, and the bank expected it to stay high.

2. 1.

   Jun sets Loans P and R beside card A. Which account of who gained fits the evidence best?

   • Loan P's borrower gained in 1980 and 1981, when inflation beat 9 percent; Loan R's lender gained as inflation fell
   • Loan R's borrower gained, since a 14 percent rate was fixed in 1983 and inflation then fell, which lowers what is owed
   • Lenders lost on both loans, since inflation runs higher than the rate a lender charges in the first years
   • Loan P's lender gained in 1980 and 1981, since the 9 percent interest was paid in full in dollars in both years
3. 2.

   A writer says surprises in inflation always move wealth from lenders to borrowers. Ari tests this with cards A to C. What is the verdict?

   • It holds only for inflation above expectations, as with Loan P; Loan R's lender gained when inflation came in low
   • It is refuted: Loan R shows lenders gain from inflation surprises, so wealth never moves from lenders to borrowers
   • It cannot be tested: Loan P's lender received all its interest in dollars, so no wealth moved in either loan
   • It is supported: Loan P's lender lost in 1980 and 1981, and one clear case shows the pattern for every loan
4. 3.

   A writer says high inflation in 1980 and 1981 hurt lenders like Loan P's. Zee looks for missing evidence. What would most challenge the writer?

   • Whether inflation in 1982 was lower than in 1981, which card A already shows as 6.2 against 10.3 percent
   • How many borrowers repaid loans like Loan P late, since late payment would add to a lender's loss
   • Whether lenders could reset such rates each year, since that would pass the loss to borrowers
   • What the CPI was in 1979, since card A leaves the 1979 rise blank and 1980's rise depends on it

5. Use this

   Cards A to C on Social Security increases and prices (cards A and B are data; card C is made up). Card A, "How the COLA is set". Source: Social Security Administration, Cost-of-Living Adjustment (COLA) information (ssa.gov), read Nov 14, 2026. Summary in our words, not a quotation: the yearly COLA is the percent rise in the CPI-W, a price index for urban wage earners and clerical workers, from the third quarter (July to September) of the last year a COLA was set to the third quarter of the current year. The increase shows in benefits paid from January. Table, columns Benefits paid from | COLA: January 2023 | 8.7 percent; January 2024 | 3.2 percent. Card B, "The CPI-U, 2021 to 2024". Source: BLS, CPI-U annual averages (1982–84 = 100), read Nov 14, 2026; the rise is computed from the unrounded index. Table, columns Year | CPI | Rise from the year before: 2021 | 270.970 | 4.7 percent; 2022 | 292.655 | 8.0 percent; 2023 | 304.702 | 4.1 percent; 2024 | 313.689 | 2.9 percent. Card C, "Two columnists (made up)". Written for this sheet. Summary in our words, not a quotation: Writer M says benefits rose 8.7 percent while the CPI-U rose 8.0 percent in 2022, so retirees came out ahead. Writer N says retirees lost ground over 2021 to 2023, because the 8.7 percent increase arrived only in January 2023.

6. 4.

   Pia weighs writers M and N on card C against cards A and B. Which statement is best supported?

   • Both are wrong, since the COLA is set to match the CPI exactly, so retirees can neither gain nor lose
   • N is right: benefits lost ground over 2021 to 2023, because the big increase did not arrive until January 2023
   • M's comparison is unsound: 8.7 percent measures CPI-W between third quarters, not CPI-U's yearly average
   • M is right: 8.7 percent is larger than 8.0 percent, so retirees' buying power rose between 2021 and 2023
7. 5.

   Esme wants one claim from cards A and B for a report on 2022 to 2024. Which claim do the cards support best?

   • The 3.2 percent increase in January 2024 was a real cut, since it fell below the 4.1 percent rise of 2023
   • Retirees' buying power was fully protected in both years, since the COLA is built to follow the price index
   • The COLA beat the CPI-U rise in both years, since 8.7 percent exceeds 8.0 percent and 3.2 percent exceeds 2.9 percent
   • The COLA trailed prices: 8.7 percent in January 2023 after 2022's 8.0, 3.2 in January 2024 after 2023's 4.1
8. 6.

   Writer N says retirees fell behind in 2022. What evidence would most help Ren test the claim?

   • CPI-U annual averages for 2019 and 2020, to show the longer trend before the price rise began in 2021
   • The COLA for January 2024, which shows how benefits ended up once the price rise had passed through
   • The share of retirees' spending that goes to food, since food prices drive the CPI-W more than other goods
   • The COLA paid from January 2022 and monthly prices through 2022, since benefits were fixed within the year

9. Use this

   Cards A to C on inflation and the Fed's goal (card A is a summary of Fed statements; card B is BLS data; card C is made up). Card A, "Two Fed statements". Source: Federal Reserve Board, Statement on Longer-Run Goals and Monetary Policy Strategy, versions of January 2012 and August 2020, read Nov 14, 2026. Summary in our words, not a quotation: in 2012 the Fed set its longer-run inflation goal at 2 percent a year, measured by the PCE price index. In August 2020 it added that it seeks inflation that averages 2 percent over time, so that after periods of persistently low inflation it would likely aim for inflation moderately above 2 percent for some time. Card B, "The CPI-U in three years". Source: BLS, CPI-U annual averages (1982–84 = 100), read Nov 14, 2026; the last column is computed. Table, columns Year | CPI | Average yearly rise to the next row: 2014 | 236.736 | about 1.5 percent; 2019 | 255.657 | about 4.2 percent; 2024 | 313.689 | the 2014 to 2024 average is about 2.9 percent. Card C, "Commentator S (made up)". Written for this sheet. Summary in our words, not a quotation: S says inflation ran below 2 percent for years before 2020, so the later years above 2 percent are exactly what the 2020 statement allowed, and there was no failure.

10. 7.

    Milo tests S's claim on card C with cards A and B. What is the best verdict?

    • Supported: the CPI rose about 1.5 percent a year before 2019 and about 4.2 percent after, the pattern the statement describes
    • Refuted: 4.2 percent a year is more than double 2 percent, so the statement could not allow it
    • Weakly supported: the CPI averaged about 1.5 percent before 2019, but the goal is set in PCE and "moderately above" is not defined
    • Refuted: the statement was made in 2020, so it cannot apply to inflation measured from 2014
11. 8.

    Luz writes a claim about 2014 to 2024 from cards A and B. Which claim is best supported?

    • CPI inflation averaged about 2.9 percent a year over 2014 to 2024, above 2 percent, though 2014 to 2019 ran below it
    • The Fed missed its goal over 2014 to 2024, since the CPI averaged 2.9 percent a year
    • The 2020 statement made the high inflation of 2021 to 2023 unavoidable, since it allowed an overshoot
    • The two stretches average out to about 2 percent, since 1.5 percent below the goal offsets 4.2 percent above it
12. 9.

    S says the later years were exactly what the Fed allowed. What evidence would most challenge S's claim, in Kira's view?

    • The unemployment rate in each year, since the Fed also seeks maximum employment and may have traded one aim for the other
    • The 2012 goal compared with the 2020 goal, since a change in the number would show the Fed moved its target
    • The PCE rise in each year compared with the earlier shortfall, since the statement allows an overshoot only as a moderate offset
    • CPI for 2025, since a later year would show whether inflation kept rising after 2024

13. Use this

    Cards A to C on pay and jobs, 2008 to 2010 (cards A and B are BLS data and notes; card C is made up). Card A, "Pay, prices and jobs, 2008 to 2010". Source: BLS, average hourly earnings of all employees on private nonfarm payrolls (series CEU0500000003), CPI-U (1982–84 = 100) and the unemployment rate (series LNU04000000), annual averages, read Nov 14, 2026. Table, columns Year | Average hourly earnings | CPI | Unemployment rate: 2008 | $21.56 | 215.303 | 5.8 percent; 2009 | $22.17 | 214.537 | 9.3 percent; 2010 | $22.56 | 218.056 | 9.6 percent. Card B, "How the average can move". Source: BLS. Summary in our words, not a quotation: average hourly earnings are computed over everyone on payrolls in each period. If many low-paid employees lose their jobs, the average can rise even when no one's pay has risen. Card C, "Two readers (made up)". Written for this sheet. Summary in our words, not a quotation: Reader V says average pay rose in 2009 while prices fell, so workers' real pay clearly rose and employers shared gains. Reader W says the 2009 rise only reflects who lost their jobs, so workers did not gain.

14. 10.

    Bo wants to separate V's reading from W's. Which evidence would help most?

    • The unemployment rate for 2007, since a year before the recession would show how far it rose
    • Pay for the same workers followed from 2008 to 2009, since that removes the effect of who lost their jobs
    • The CPI for each month of 2009, since a more detailed price index would give a better real-pay figure
    • Average hourly earnings for 2011, since a longer series would show whether the 2009 rise lasted