Question

1) Discuss the CPI, what it measures, and how it is calculated. a) How does the BLS calculate an index of the average person's spending habits? b) How do they track the price changes? c) What is the Producer Price Index?

Answer 1

1. The CPI, also known as the Consumer Price Index is an index representing weighted average of the prices of goods and services of a basket of goods consumed by a typical consumer. It tracks the changes in price level of goods and services consumed by a consumer. It is calculated as: CPI (Cost of basket at current market prices Cost of basket at base year prices) x 100 a) an average change in prices paid by consumers for a market basket of goods and services. The BLS conducts surveys to collect information on a typical basket of The BLS calculates the CPI by taking goods and services consumed by an average consumer and then tracks its price changes. b) They track price changes by taking a weighted average of price changes for a basket of goods and services consumed by consumers and using the above-mentioned formula for CPI, the price change value is calculated. c) Producer Price index is an index representing weighted average of the selling cost of goods and services of a basket of sold by a typical seller or producer. It tracks the changes in selling costs of goods and services sold in a market by a producer.