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change in prices from one year to the next,
they need to compute a price index, the
average price level. The most widely cited
price index is the consumer price index
(CPI). You might have heard a newscaster
say, “Today it was reported in Washington
that the consumer price index has risen 3.2
percent on an annual basis.” Let’s look at
how the CPI is computed and what it
E X A M P L E : If you are reading this
book, you were probably born around 1989.
Let’s take the CPI in 1989, which was 121.1.
Now let’s find the latest CPI data we can
find (at the time of this writing). The CPI for
April 2005 was 194.6. (If you want to find a
more recent CPI, we will give you a Web
address shortly.) Now let’s calculate how
much prices (as measured by the CPI) went
up between 1989 and April 2005. The calculation is [(194.6
which is 60.69 percent. This means what
cost $1 when you were born would now cost
(on average) about $1.61. price index
A measure of the price
level, or the average
level of prices.
consumer price index
The most widely cited
price index. Section 4 Measu...
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This document was uploaded on 01/16/2014.
- Winter '14