CPI info - The Consumer Price Index (CPI) aims to measure...

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The Consumer Price Index (CPI) aims to measure how consumers’ purchasing power is affected by rising prices. The CPI uses a household expenditure survey in order to measure what people spend their money on. From this survey the CPI can understand what the typical basket of goods an average household consumes. This basket of goods gives a relative importance to each different item, for example- if housing increased by 10% this would have more effect than a 10% increase in the price of radios (Stevens, 1996). The basket of goods is updated each year to take into account changes in expenditure. Every month changes in prices of goods and services are monitored and combined into a single figure with using the weights in the basket. According to Paul Samuelson, the CPI is computed through a four-step process: 1. The fixed basket of goods and services is defined. This requires figuring out where the typical consumer spends his or her money. The Bureau of Labor Statistics surveys consumers to gather this information. 2. The prices for every item in the fixed basket are found. Since the same basket of goods and services is used across a number of time periods to determine changes in the CPI, the price for every item in the fixed basket must be found for every point in time. 3. The cost of the fixed basket of goods and services must be calculated for each time period.
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CPI info - The Consumer Price Index (CPI) aims to measure...

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