CPI and Inflation-short

CPI and Inflation-short - The Consumer Price Index (CPI)...

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The Consumer Price Index (CPI) The CPI measures the typical urban consumer’s cost of living The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is basis of cost of living adjustments (COLAs) in many contracts and in Social Security
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2 How the CPI Is Calculated 1. Fix the “basket.” The Bureau of Labor Statistics (BLS) surveys consumers to determine what’s in the typical consumer’s “shopping basket.” 2. Find the prices. The BLS collects data on the prices of all the goods in the basket. For the current CPI, info was based on the Consumer Expenditure Surveys for 2007 and 2008 3. Compute the basket’s cost. Use the prices to compute the total cost of the basket. 4. Choose a base year and compute the index
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What goods and services does the CPI cover? There are more than 200 categories of goods, arranged into 8 major groups The 8 Major Groups are: FOOD AND BEVERAGES HOUSING APPAREL TRANSPORTATION MEDICAL CARE RECREATION EDUCATION AND COMMUNICATION OTHER GOODS AND SERVICES
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4 The 2009 Consumer Price Index Basket
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5 How is the CPI Is Calculated? 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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6
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7 How is the Consumer Price Index (CPI) Calculated? The CPI in any year equals 100 x cost of basket in current year cost of basket in base year CPI =
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The CPI is then used to Calculate the Rate of Inflation Compute the Inflation Rate. The percentage change in the CPI from the preceding period. CPI this year
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This document was uploaded on 11/03/2011 for the course ECON 222 at Cal Poly.

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CPI and Inflation-short - The Consumer Price Index (CPI)...

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