Economics_Ch11

# The most widely cited price index is the consumer

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Unformatted text preview: e 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 means. 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 [(194.6 121.1)/121.1] 100, 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 (CPI) The most widely cited price index. Section 4 Measu...
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## This document was uploaded on 01/16/2014.

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