Government and the Macroeconomy · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 17% of your exam marks.
Inflation causes (demand-pull vs cost-push), effects on different groups, and measurement appear in almost every series; 8 to 15 marks per paper.
The Consumer Price Index (CPI) is a weighted index that tracks the average price of a representative basket of goods and services that a typical household buys. The percentage change in the CPI from one period to the next is the inflation rate.
Three steps the statistical agency takes.
Step 1: choose the basket. Statisticians survey thousands of households to find out what they actually spend their money on. The basket is then a representative selection: food, rent, transport, energy, clothing, entertainment, services, and many more sub-categories.
Step 2: apply weights. Items are weighted by their share of household spending. Rent and food typically have very large weights; restaurant meals and overseas holidays have smaller weights. So a 10% rise in rent has more impact on the CPI than a 10% rise in cinema tickets.
Step 3: record prices. Statisticians record the price of every item in the basket each month, in many locations. The weighted average is calculated to give the index value.
The basket and weights are updated periodically (usually annually) to reflect changing consumption patterns. New items are added; outdated items are removed.
Inflation rate (%) = ((new CPI − old CPI) ÷ old CPI) × 100
Example — CPI rises from 110 to 115.5 over a year.
Inflation rate = (115.5 − 110) ÷ 110 × 100 = 5%
Two slips that lose marks: