Calculation of the Consumer Price Index

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Calculation of the Consumer Price Index HYPERLINK "http /www /sys ?rate 6 id 91120

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p language Review Appendix D ( SEE ADDITIONAL MATERIAL I HAVE SUBMITTED AS AN ATTACHMENT

Using the chart provided ( SEE ADDITIONAL MATERIALS I SUBMITTED AS AN ATTACHMENT AS WELL , identify three strengths and three weaknesses of the calculation Post a 200- to 300-word response that answers the following questions once your chart is complete

o What are the characteristics of the items listed as strengths p

o What are the characteristics of the items listed as weaknesses

o If the CPI is imperfect , why do we use it CITE THIS REFERENCE

Principles of Economics , 3e , Mankiw - (c ) 2004 N . Gregory Mankiw

Additional actions CONSUMER PRICE INDEX

Strengths Weaknesses

1 Nation 's best inflation indicator with accurate figures . There is no alternative adjustment or substitution for CPI

2 Clear message to investors about financial markets . Does not include those living in farms or rural areas

3 Indicates a `warning signal ' for undertaking measures to stabilize the economy . A new product introduced in the market may take several months to be included in CPI .Characteristics of strengths

A clear indicator of government effective functioning and its policies .Increase or decreasing in cost of living for people of a particular state

CPI is collected on monthly basis about goods and services excluding taxes

Inflation moves financial and consumer market , disclosing the facts that rise of inflation , signifies that consumers are at a loss as goods purchased with every dollar return less number of goods and for investors increase in interest rates of borrowing from banks

Characteristics of weaknesses

A greater scope and opportunity for speculation in financial market due to political imbalances and change in government policies which seriously effect stock exchange trading which results in loss of investments for investors

Only urban population is considered as consumers whereas rural areas population earnings are not considered

Lot of scope for uncertainty as some of the major issues viz education , health and security are not represented in cost of living

If the CPI is imperfect , why do we use it

To enable economists and statisticians to advise the governments from time to time , to take corrective and suggestive measures to improve a nation 's economy which is interdependent on cost of living as a measuring scale for computation of CPI . Comparison with other countries CPI , indicates whether a particular state 's economy is improving , better or good in performance...