Canadian Securities Course (CSC) Level 1 Practice Exam

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What is the Consumer Price Index (CPI) and what is the formula for it?

An index comparing national GDP figures over time
A measure of consumer spending patterns and income distribution
An index measuring the price of a basket of goods and services against a base year
A calculation of consumer debt levels relative to disposable income

The correct answer is: An index measuring the price of a basket of goods and services against a base year

The Consumer Price Index (CPI) is indeed an index measuring the price of a basket of goods and services against a base year. It is used to track changes in the price level of a designated set of consumer goods and services over time, which reflects inflation or deflation in the economy. By comparing the current cost of this basket to its cost in a selected base year, the CPI provides vital information about the purchasing power of consumers and indicates how the cost of living changes. This measure is important for policymakers, economists, and analysts, as it helps inform decisions on monetary policy, wage adjustments, and social security benefits, among other economic indicators. The CPI influences various sectors, including finance, by providing insights into economic trends that can impact investment decisions and consumer behavior.