Baskets, Base Years, and Bias: Constructing and
Using a Student Price Index
Lesson Objectives
1. Define key terms such as market basket, consumer price index, inflation,
inflation rate, substitution bias, and unmeasured quality changes.
2. Calculate a market basket value, a student price index number, and the
inflation rate.
3. Contrast two market basket values, determining reasons for differences in
value.
4. Simulate how changes in fiscal policy can affect the price level in the
economy.
5. Simulate how changes in the money supply can affect the price of a
market basket of goods.
6. Describe how open market operations cause changes in the money
supply.
7. Create a short paper or presentation describing the strengths and
weaknesses of using a consumer price index as a measure of inflation.
Why does money have value?
The Fed Explained Video Series
Visual 1: Inflation Simulation
Visual 2: What is in the Consumer Price Index market basket?
Handout 2 - Student Market Basket
Visual 3 - Calculations Record Sheet
Analysis and Presentations
1. Merge with another group.
2. Answer question 13 a to f on Handout 1:
Student Price Index Instructions.
3. Select a spokesperson.
4. Share answers.
Limitations of CPI as a Measure of Inflation
• Substitution bias
• Unmeasured quality changes
• Differences in individual purchasing
patterns
• Introduction of new goods
Comparing Student Market Baskets
Match the terms to their definition::
Word
Description
Services
Actions that satisfy consumers’ wants
Goods
Objects that satisfy consumers’ wants
Bureau of Labor Statistics
(BLS)
Core CPI
Inflation rate
Inflation
Consumer
Consumer Price Index (CPI)
Agency that collects economic data
The CPI less food and energy
Percentage change in the average price level
A general rise in prices
Person who uses goods and services
Measures the change in the price level from
one time period to another