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

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   Use this

   Cards A and B on prices (card A is BLS data; card B is made up). Card A, "The CPI in four years". Source: BLS, CPI-U annual averages, 1982–84 = 100 (read Nov 14, 2026). Table, columns Year | CPI: 1990 | 130.7; 2000 | 172.2; 2010 | 218.1; 2020 | 258.8. Note in our words: the CPI follows the cost of one fixed basket of goods and services that urban households buy, and the years 1982–84 are set at 100. Card B, "A cousin's claims (made up)". Written for this sheet. Summary in our words, not a quotation: Zee's cousin says prices rose fastest in the 2000s, because the index gained 45.9 points then, more than in the 1990s or the 2010s. The cousin also says a basket that cost $10 in 1990 would cost about $20 in 2020.

2. 1.

   Jun checks the cousin's first claim on card B against card A. Which statement about the three decades fits the data best?

   • Prices rose fastest from 1990 to 2000, about 32 percent, though the 2000s added more index points from a higher start
   • No decade can be named, since the CPI is a level of prices and a speed of rise cannot be read from a level
   • Prices rose fastest from 2000 to 2010, since the index gained 45.9 points then, more than in any other decade
   • Prices rose fastest from 2010 to 2020, since the index reached its highest level, 258.8, at the end of that decade
3. 2.

   What does the 2000 CPI of 172.2 on card A tell Bo about prices in 2000?

   • Prices in 2000 were about 72 percent above the 1982–84 average, since 172.2 is 72.2 points over the base of 100
   • Families earned 72.2 percent more in 2000 than in 1982–84, since the index tracks incomes along with prices
   • Prices rose 72.2 percent during 2000 alone, since the index started that year at the base of 100
   • Prices in 2000 were 172.2 percent higher than in 1982–84, since the index is itself a percent change

4. Use this

   Cards A to C on pay and prices (cards A and B are BLS data and notes; card C is made up). Card A, "Pay and prices, 2019 to 2024". Source: BLS, average hourly earnings of all employees on private nonfarm payrolls (series CEU0500000003) and CPI-U (1982–84 = 100), annual averages, read Nov 14, 2026. Table, columns Year | Average hourly earnings | CPI: 2019 | $27.99 | 255.7; 2021 | $30.60 | 271.0; 2022 | $32.26 | 292.7; 2024 | $35.06 | 313.7. Card B, "What the earnings series counts". Source: BLS. Summary in our words, not a quotation: average hourly earnings divide the pay of all employees on private nonfarm payrolls by their hours. The series is an average over everyone who holds a job that year, and it does not follow the same workers from year to year. Card C, "An uncle's claim (made up)". Written for this sheet. Summary in our words, not a quotation: Ari's uncle says pay is up 25 percent since 2019, so every worker can now buy 25 percent more than before.

5. 3.

   Pia tests the uncle's claim on card C with cards A and B. Which statement fits the evidence best?

   • Buying power fell, since the CPI rose from each year shown to the next and pay cannot keep up with every rise
   • Buying power rose 25.3 percent, since average pay is what workers have to spend and it rose by that much
   • Buying power did not change, since pay and prices both rose and a rise in one cancels a rise in the other
   • Average pay rose 25.3 percent while prices rose 22.7 percent, so average buying power rose by only about 2 percent
6. 4.

   Ren lists four claims. Which one goes beyond what cards A and B show?

   • From 2021 to 2022 average pay rose 5.4 percent, less than the 8.0 percent rise in the CPI
   • Every worker's own pay kept ahead of prices from 2019 to 2024, since the average did
   • Average hourly pay rose faster than the CPI from 2019 to 2024: 25.3 percent against 22.7 percent
   • In 2021 average pay stood 9.3 percent above its 2019 level while the CPI stood 6.0 percent above
7. 5.

   Esme compares 2021 and 2022 on card A. What happened to the buying power of average pay?

   • It rose: average pay went from $30.60 to $32.26, an increase of $1.66 an hour, so workers had more
   • It fell: average pay rose 5.4 percent but prices rose 8.0 percent, so each hour of work bought less
   • It fell by 8.0 percent: prices rose 8.0 percent, and a pay rise does not change what prices do to buying power
   • It held steady: pay and prices both rose in 2022, so the two rises offset each other for workers

8. Use this

   Cards A and B on prices from 2004 to 2009 (card A is BLS data; card B is made up). Card A, "The CPI, 2004 to 2009". Source: BLS, CPI-U annual averages (1982–84 = 100), read Nov 14, 2026; the last column is computed from the unrounded index. Table, columns Year | CPI | Rise from the year before: 2004 | 188.9 | 2.7 percent; 2005 | 195.3 | 3.4 percent; 2006 | 201.6 | 3.2 percent; 2007 | 207.342 | 2.8 percent; 2008 | 215.303 | 3.8 percent; 2009 | 214.537 | −0.4 percent. Note in our words: inflation is a rise in the general price level, and deflation is a fall in it. Card B, "Three readers (made up)". Written for this sheet. Summary in our words, not a quotation: Reader D adds the yearly rises to get a total. Reader E says prices in 2009 were lower than in 2004. Reader F says inflation rose every year until 2009.

9. 6.

   Tala reads the 2006 and 2007 rows of card A. Which statement is supported?

   • Prices in 2007 returned to their 2005 level, since the rate of rise fell between 2005 and 2007
   • Prices fell in 2007, since the yearly inflation rate dropped from 3.2 percent in 2006 to 2.8 percent in 2007
   • Prices kept rising in 2007, only more slowly than in 2006: the yearly rise fell from 3.2 to 2.8 percent
   • Prices stopped rising in 2007, since inflation slowed and a slowing rise soon turns into a halt
10. 7.

    Milo reads the 2009 row of card A. What does it show, and how is it different from slower inflation?

    • Disinflation: the yearly rise slowed from 3.8 percent in 2008 to −0.4 percent, but prices still went up
    • The CPI cannot fall: it prices a fixed basket, so a minus sign on card A means a rise that slowed
    • Deflation across the whole span: prices in 2009 were lower than in 2004 because the 2009 rate was below zero
    • Deflation: the CPI itself fell, from 215.303 to 214.537, so prices were lower in 2009 than in 2008

11. Use this

    Cards A to C on one loan (all made up for practice). Card A, "Marta's loan (made up)". Written for this sheet. Summary in our words, not a quotation: Marta lends $1,000 to Tomas for one year at a fixed interest rate of 3 percent. Tomas repays $1,030 at the end of the year. Card B, "Inflation (made up)". Written for this sheet. Summary in our words, not a quotation: when the loan was made, both people expected prices to rise 2 percent over the year. Prices rose 5 percent. Card C, "Two ways to write the loan (made up)". Written for this sheet. Summary in our words, not a quotation: Loan X keeps the rate at 3 percent for the whole year. Loan Y sets the rate at 3 percent plus the year's inflation rate, worked out when the year ends.

12. 8.

    Noah reads cards A and B. Who gained from the surprise, and why?

    • Marta gained: she expected prices to rise 2 percent and still received the full $30 of interest she was promised
    • Marta gained: higher inflation raises the number of dollars owed, so the $1,030 repayment grew along with prices
    • Neither gained: both agreed to the 3 percent rate, so a surprise in prices affects them both equally
    • Tomas gained: the 3 percent rate stayed fixed while prices rose 5 percent, so the dollars repaid bought less
13. 9.

    Kira works out Marta's real return from the loan. Which statement fits cards A and B?

    • About +3 percent: interest is what a lender earns, and inflation does not change the rate written in the loan
    • About −5 percent: inflation took away 5 percent, and interest paid in cheaper dollars cannot make up any of it
    • About −2 percent: 3 percent interest minus 5 percent inflation, so the repaid dollars bought less than the loan
    • About +1 percent: 3 percent interest minus the 2 percent inflation that both people expected for the year
14. 10.

    Jun reads card C. Which loan protects the lender if inflation turns out higher than expected, and why?

    • Loan X: a fixed rate guarantees the same real return in any year, whatever happens to prices
    • Neither: any loan loses value when inflation is higher than expected, however its rate is written
    • Loan Y: its rate rises with inflation, so the lender's real return stays near 3 percent
    • Loan X: the lender knows the dollar payment in advance, which removes the risk from higher inflation