DSE Economics: Inflation — Tutor Lesson Plan (CPI, real income, wealth transfer)

2026-10-28

Tutor lesson-prep guides · Secondary economics

Students say prices rose but cannot say whether their pay kept up. This lesson separates nominal from real and settles it with one index calculation.

Objectives — the student can compute a CPI and an inflation rate, classify demand-pull against cost-push, and convert nominal income into real income.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Percentages	From 110 to 120 is what percentage rise?	9.09 percent
Index numbers	What is the index in the base year?	100
Nominal and real	The difference	Real removes price change

02 Lesson flow (60 minutes)

Time	Stage	Tutor does	Student does
0-8 min	What inflation is	Sustained, general price rise	Give three everyday examples
8-24 min	The CPI	A basket costing 4500 then 5400	Get 120
24-36 min	Inflation rate	(120 – 110) / 110	Get 9.09 percent
36-48 min	Causes	Demand-pull against cost-push	Classify four cases
48-56 min	Effects	Real income, saving, borrowing	Compute real income
56-60 min	Exit check	Three questions marked	Finish alone

03 Teaching script (read it out)

Scene 1: The CPI is relative, not a price

CPI equals the current basket cost divided by the base cost times 100. From 4500 to 5400: 5400 / 4500 x 100 = 120.
The base year is always 100, so 120 means prices are 20 percent above the base.

Student states whether 110 to 120 is a 10 percent or 9.09 percent rise.

Scene 2: The inflation rate uses the previous period as denominator

Inflation is (120 – 110) / 110 x 100 = 9.09 percent.
Ten index points is not ten percent, and mixing the two is the classic lost mark.

Note: the denominator is the previous CPI, never 100.

Scene 3: Nominal to real: divide by the CPI and multiply by 100

Nominal income 24 000 with a CPI of 120 gives real income 24 000 / 120 x 100 = 20 000.
A nominal interest rate of 5 percent against 9.09 percent inflation is about minus 4.09 percent real, so deposits lose purchasing power.

Student answers who loses and who gains (savers lose, borrowers gain).

04 Question types and worked steps

Type	Example	Steps	Answer
CPI	basket cost to index	Current over base times 100	120
Inflation rate	(120 – 110) / 110	Divide by the previous period	9.09 percent
Real value	24 000 at CPI 120	Divide and multiply by 100	20 000
Classification	oil price rise feeding through	Cost-push	Higher production cost

Sanity check (teach this): A CPI does not move because incomes move. If income and the index are handled together, nominal and real have been mixed up.

05 Independent practice (3 questions)

Question	Answer	What to watch
Basket 4500 to 5400	CPI 120	Base used as denominator
CPI 110 to 120	9.09 percent	Denominator 110, not 100
Nominal 24 000 at CPI 120	20 000	Divided then multiplied by 100

06 Common mistakes and what to say

Mistake	Student writes	Say this
Inflation written as 10 percent	index points used	A 10 point gap is a 9.09 percent rate.
Current year as denominator	index of 111.1	The base year is the denominator.
CPI subtracted from income	24 000 – 120	Divide by the index first.
Any price rise called inflation	one product dearer	Inflation must be sustained and general.

07 Homework (paper, section and question numbers)

DSE Economics practice paper (CPI and real income) — Section B (CPI and real income)
Secondary economics chapter index — All chapters

08 Exit check (last 5 minutes)

Question	Answer	Decision
CPI from 4500 to 5400	120	All three right: move to unemployment
Inflation from 110 to 120	9.09 percent	One wrong: re-teach the denominator
Real income, 24 000 at CPI 120	20 000	Two wrong: repeat scene 3

09 Tutor FAQ

CPI against inflation rate?

The CPI is a price level; the inflation rate is its percentage change.

Is inflation always bad?

Mild inflation can encourage spending and investment; hyperinflation damages the economy.

Is the real interest rate examined?

Yes, the nominal rate minus the inflation rate is enough for DSE.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.