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Tests are done by the manufacturer and submitted to EPA (which checks up on a fraction of them). It's done using a test cycle -- a specification of variable speeds over time including stops. Results are then reduced by 10% (city) and 22% (highway) to better fit real-world driving. More info:robgobbler said:... what downhill-windless city that doesn't have traffic lights was the EPA driving in when they got 57 mpg?!?!?
http://www.fueleconomy.gov/feg/info.shtml#estimates
YMMV!