Measuring the Econo19

Measuring the Econo19 - Measuring the Economy Calculating...

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Measuring the Economy Calculating Inflation Using CPI The price level most commonly used in the United States is the CPI, or consumer price index. Thus, the simplest and most common method of calculating inflation is to calculate the percentage change in the CPI from one year to the next. The CPI is calculated using a fixed basket of goods and services; the percentage change in the CPI therefore tells how much more or less expensive the fixed basket of goods and services in the CPI is from one year to the next. The percentage change in the CPI is also known as the percentage change in the price level or as the inflation rate. Fortunately, once the CPI has been calculated, the percentage change in the price level is very easy to find. Let us look at the following example of "Country B." Figure %: Goods and Services Consumed in Country B 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

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Measuring the Econo19 - Measuring the Economy Calculating...

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