Over time the CPI changes only as the prices associated with the items in the fixed basket of goods

Over time the CPI changes only as the prices associated with the items in the fixed basket of goods

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Unformatted text preview: Over time the CPI changes only as the prices associated with the items in the fixed basket of goods change. In the example from Country B, the CPI increased from 100 to 141 to 182 from time period 1 to time period 2 to time period 3. The percent change in the price level from the base year to the comparison year is calculated by subtracting 100 from the CPI. In this example, the percent change in the price level from time period 1 to time period 2 is 141 - 100 = 41%. The percent change in the price level from time period 1 to time period 3 is 182 - 100 = 82%. In this way, changes in the cost of living can be calculated across time. These changes are described by the inflation rate. That is, the rate of inflation from period 1 to period 2 was 41% and the rate of inflation from period 1 to period 3 was 82%. Notice that the inflation rate can only be calculated using period 1 to period 3 was 82%....
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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