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

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on the federal minimum wage (cards A and B are data; card C is made up). Card A, "The federal minimum wage". Source: U.S. Department of Labor, Wage and Hour Division, Federal Minimum Wage chart (dol.gov), read Nov 14, 2026. Table, columns July 1 of | Rate in effect: 1980 | $3.10; 1990 | $3.80; 2000 | $5.15; 2010 | $7.25; 2020 | $7.25. Note: the rate rose to $7.25 on July 24, 2009. Card B, "The same wage in two sets of dollars". Source: computed for this sheet from card A and BLS CPI-U annual averages (1982–84 = 100): 1980, 82.4; 1990, 130.7; 2000, 172.2; 2010, 218.056; 2020, 258.811. Table, columns Year | In 2020 dollars | In 1980 dollars: 1980 | $9.74 | $3.10; 1990 | $7.52 | $2.40; 2000 | $7.74 | $2.46; 2010 | $8.61 | $2.74; 2020 | $7.25 | $2.31. Note: each real wage is the rate times the base year's CPI divided by that year's CPI. Card C, "Two speakers (made up)". Written for this sheet. Summary in our words, not a quotation: Speaker P says the minimum wage was raised from $3.10 to $7.25 between 1980 and 2020, more than doubling, so workers on it are far better off. Speaker R says the 2020 wage buys less than the 1980 wage did, so workers on it are worse off.

2. 1.

   Ari weighs speakers P and R on card C using cards A and B. Which statement fits the evidence best?

   • Neither can be judged, because wages from 1980 and 2020 are in different years and cannot be compared without a base year
   • R is better supported: the dollar wage rose 134 percent, but in 2020 dollars it fell from $9.74 to $7.25, about a quarter
   • P is better supported: the wage more than doubled from $3.10 to $7.25, and a larger wage buys more
   • R is right, but the loss looks much larger in 2020 dollars ($2.49) than in 1980 dollars ($0.79), so the base year matters
3. 2.

   Bo reads the 2020-dollar column of card B. Which account of 1980 to 2020 fits the evidence best?

   • Buying power fell in each decade, since prices rose in each decade and the wage did not keep up with them
   • Buying power rose in each decade, since the dollar rate rose or stayed level in each decade shown on card A
   • Buying power fell in the 1980s, rose through 2010 as increases outran prices, then fell again with the wage held at $7.25
   • Buying power in 2020 was above its 1990 level, since $7.25 is almost double $3.80 and prices did not quite double
4. 3.

   Speaker P proposes indexing the wage to the CPI from 2010. Pia uses card B. What rate would that give in 2020?

   • About $6.11: indexing divides the 2010 rate by the CPI's rise of about 1.187 between 2010 and 2020
   • About $7.25: the 2010 rate is already in 2020 dollars, because the same rate was in effect in 2010 and 2020
   • About $9.74: indexing the wage to the CPI restores the buying power it had in 1980
   • About $8.61: indexing from 2010 keeps the 2010 wage's buying power, which card B puts at $8.61 in 2020 dollars

5. Use this

   Cards A to C on interest rates and inflation in 2022 and 2023 (cards A and B are data; card C is made up). Card A, "The Fed's target range for the federal funds rate". Source: Federal Reserve Board, Open Market Operations, Historical Changes in the Target Range (federalreserve.gov), read Nov 14, 2026. Table, columns Date | Target range: March 17, 2022 | 0.25 to 0.50 percent; December 15, 2022 | 4.25 to 4.50 percent; July 27, 2023 | 5.25 to 5.50 percent. Note in our words: the federal funds rate is what banks charge one another for overnight loans, and it moves other interest rates. Card B, "Inflation in three years". Source: BLS, CPI-U annual averages (1982–84 = 100), read Nov 14, 2026. 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. Note in our words: a yearly average is only a rough guide to inflation on one day, since prices move during the year. Card C, "Two commentators (made up)". Written for this sheet. Summary in our words, not a quotation: Commentator J says that by December 2022 rates had risen by about four points, so credit was clearly expensive. Commentator K says the rises came too small and too late, and that credit was still cheap once inflation is counted.

6. 4.

   Zee compares July 2023 with December 2022 using the same rough measure. Which statement is supported?

   • The real rate was about 5.4 percent, since the nominal range is the true cost of credit whatever inflation does
   • The real rate stayed negative, since a top rate of 5.50 percent is still below the 8.0 percent inflation of 2022
   • The real rate was lower than in December 2022, since the range rose less after December 2022 than during 2022
   • The real rate turned positive, since 5.25 to 5.50 percent is above 2023's 4.1 percent inflation
7. 5.

   Noah lists four claims. Which one can cards A and B not support?

   • The top of the target range stood one full point higher in July 2023 than in December 2022
   • The top of the target range rose from 0.50 percent in March 2022 to 5.50 percent in July 2023
   • Inflation by the yearly CPI average was higher in 2022 than in 2021 and in 2023
   • The Fed's rate rises of 2022 and 2023 caused the fall in inflation from 8.0 to 4.1 percent

8. Use this

   Cards A to C on jobs and prices (card A is BLS data; card B is made up; card C is a summary). Card A, "Unemployment and inflation, 1992 to 1998". Source: BLS, unemployment rate (series LNU04000000) and CPI-U (1982–84 = 100), annual averages, read Nov 14, 2026; the rise is computed from the unrounded index. Table, columns Year | Unemployment rate | CPI rise from the year before: 1992 | 7.5 percent | 3.0 percent; 1993 | 6.9 percent | 3.0 percent; 1994 | 6.1 percent | 2.6 percent; 1995 | 5.6 percent | 2.8 percent; 1996 | 5.4 percent | 3.0 percent; 1997 | 4.9 percent | 2.3 percent; 1998 | 4.5 percent | 1.6 percent. Card B, "A rule of thumb (made up)". Written for this sheet. Summary in our words, not a quotation: a made-up panel says the Fed should raise its target rate whenever the unemployment rate falls below 5.5 percent for a year, because a tight job market pushes prices up. Card C, "The Fed's two aims". Source: Federal Reserve Act, Section 2A, as described by the Federal Reserve Board. Summary in our words, not a quotation: Congress told the Fed to promote maximum employment and stable prices.

9. 6.

   Ren applies card B's rule to card A. Which statement fits the evidence best?

   • The rule is confirmed: in 1996, the first year below 5.5 percent, inflation was 3.0 percent, up from 2.8 percent in 1995
   • The rule would have called for rises in 1996, 1997 and 1998, even though inflation was 3.0 percent or lower in each year
   • The rule would have served both aims on card C, since unemployment below 5.5 percent already showed maximum employment
   • The rule would have called for rises from 1995, since unemployment was already 5.6 percent and had fallen for three years
10. 7.

    Luz lists four claims about card A. Which one goes beyond what the table shows?

    • A tight job market never raises inflation, since unemployment fell for seven years while inflation fell
    • Unemployment fell 3.0 points from 1992 to 1998, from 7.5 percent down to 4.5 percent over those years
    • Falling unemployment did not come with rising inflation in these seven years, as the first and last rows show
    • Inflation was lowest in 1998, at 1.6 percent, in the same year that unemployment was also at its lowest

11. Use this

    Cards A to C on a town's price index (all made up for practice). Card A, "A town's basket (made up)". Written for this sheet. Summary in our words, not a quotation: the town's price index prices a fixed basket of 10 apples and 10 pears each month. In Year 1 an apple costs $1 and a pear costs $1, so the basket costs $20. In Year 2 an apple costs $2 and a pear costs $1, so the same basket costs $30. The town raises each pension every year by the percent rise of the index. Card B, "What families did (made up)". Written for this sheet. Summary in our words, not a quotation: in Year 2, families bought 2 apples and 18 pears a month, and this mix cost them $22. They say the new mix pleases them about as much as the old one did in Year 1. Card C, "Two designs (made up)". Written for this sheet. Summary in our words, not a quotation: Design F prices the Year 1 basket every year. Design U prices what families bought that year, using a yearly purchase survey; the survey costs the town money and its answers arrive a year late.

12. 8.

    Esme compares card A's index with card B. What does the fixed-basket rise of 50 percent do?

    • It is exact for every family, since it prices the same goods in both years and the goods are what families buy
    • It overstates their cost of living: switching to pears kept them as well off for a mix costing only 10 percent more
    • It understates their cost of living, since apples doubled in price (100 percent) while the index shows only 50 percent
    • It tells nothing, since the basket no longer matches what anyone buys, so the prices in it mean nothing
13. 9.

    Pensions rise by the index on card A. Bo uses card B. Who gains from this rule in Year 2?

    • No one gains: a pension that rises with the index only keeps up, so every pensioner stays exactly as well off
    • Only pensioners who stopped buying apples altogether gain, since the rest face the apple price rise in full
    • Pensioners who switched to pears gain: their pension rises 50 percent, their living cost only 10
    • All pensioners gain equally, since every pension rises by the same 50 percent whatever the pensioner buys
14. 10.

    Kira weighs Design F against Design U on card C. Which statement is best supported?

    • Design U tracks what families pay for the same satisfaction better, but it costs a survey and arrives late
    • The two give the same Year 2 index, since both designs price the same apples and pears in Year 2
    • Design F is better, since a basket that stays fixed is the fair comparison of prices over time
    • Design U is simply better, since it prices what families actually buy and so is the more accurate index