12: measuring cost of living

Question 1

Consumer price index (CPI)

Answer 1

– Measure of the overall level of prices
– Measure of the overall cost of goods and services
– Bought by a typical consumer

Question 2

Fix the basket
– The Bureau of Labor Statistics (BLS) surveys consumers to determine what’s in the typical
consumer’s “shopping basket.”

Question 3

Find the prices
– The BLS collects data on the prices of all the
goods in the basket.

Question 4

Compute the basket’s cost
– Use the prices to compute the total cost of the
basket

Question 5

Chose a base year and compute the CPI
–Cost of basket of goods and services in
current year divided by cost of basket in
base year
–Times 100

Question 6

Compute the inflation rate
– The percentage change in the CPI from the preceding period

*Inflation rate =CPI this year−CPI last year / CPI last year ×100

Question 7

core CPI

Answer 7

calculates the CPI for all goods and services excluding food and energy, a statistic

Question 8

producer price index

Answer 8

which measures the cost of a basket of goods and services bought by firms rather than consumers.