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10 Cards in this Set
- Front
- Back
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Consumer Price Index (CPI)
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a measure of the overall cost of the goods and services bought by a typical consumer
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Inflation
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a situation in which the economy's overall price level is rising
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Inflation Rate
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is the percentage change in the in the price level from the previous period
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How the CPI is calculated?
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1. Fix the Basket
2. Find the Prices 3. Compute the basket's cost 4. Choose a base year and compute the index |
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Bureau of Labor Statistics BLS
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- is part of the Department of Labor
-each month it computes and reports the consumer price index - this index is compared with to the GDP deflator |
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1. Fix the basket
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-determine which prices are more important to the typical consumer
- the higher amount of purchased items are given more weight in the measure of the cost of living |
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2. Find the prices
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- Find the prices of each of the goods and services in the basket at each point in time
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3. Compute the basket's cost
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--use the data on prices to calculate the cost of the basket of goods and services at different times
-by keeping the basket of goods the same, we are isolating the effects of price changes from the effect of any quantity changes that might be occurring at the same time. |
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4. Choose a base year and compute the Index
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-designate one year as the base year
the benchmark against which other years are compared * the choice of base year is random, as the index is used as to measure changes in the cost of living -once the base year is chosen, the consumer price index is calculated |
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Formula for Consumer Price Index
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CPI= Price of basket of goods and services in current year/Price of basket in base year X 100
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