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Calculation of the Consumer Prices Index (CPI)

Question

Explain how the Consumer Prices Index (CPI) is calculated.

Category:

Economic Systems

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Preview Answer

Consumer Price Index (CPI) - a measure of inflation and changes in the cost of living.

I. 🍃Introduction
A. Definition of CPI
B. Importance of CPI
C. Purpose of constructing a representative basket of goods and services

II. Construction of the Basket
A. Selection of goods and services
B. Monitoring of prices over time
C. Weighting of goods and services

III. Calculation of CPI
A. Measurement of annual price changes
B. Multiplication of price changes by weights
C. Comparison of weighted price changes against a base year

IV. Interpretation of CPI
A. Inflation and deflation
B. Changes in the cost of living
C. Impact on the economy and consumers

V. Limitations of CPI
A. Exclusion of certain goods and services
B. Changes in consumer behavior
C. Accuracy of data collection

VI. 👉Conclusion
A. Recap of importance of CPI
B. Future considerations for improving CPI accuracy and relevance.

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