The Measurement of Inflation

Question 1

define inflation

Answer 1

a noticeable price increase over time, across a range of goods and service

Question 2

in australia what has been the inflation rate since 90s and what was the inflation rate in the 70s and 80s

Answer 2

3% = safe in 90s
8% = not good 70s/80s

Question 3

what is the consumer price index

Answer 3

a measure of the changes in the prices of a basket (sample) of good/services bought by Aus households from one quarter to the next

Question 4

baskets cover a range of items - explain this statement, what is a basket?

Answer 4

a permanent mix of goods and services that are contsantly purchased/cycled through economy - items are classified int 11 major groups, 33 subgroups and 87 classes of expenditure. The ABS collects 900,000 separate price quotes across the groups each quarter in order to construct the CPI

Question 5

explain the weight attached to each item in the basket

Answer 5

each item has dif importance on household budget so the ABS attaches a weight to each commodity in the CPI basket to reflect importance to an average household
It is a percentage of household income that is spent on a certain item

Question 6

what is the current weight on healthcare

Answer 6

5.7% of ave fam expenditure

Question 7

do factors influence weights? can weights change?

Answer 7

yes - weights rise and fall depending on consumer preferences and their reactions to price changes (eg weight for fruit class would rise if bad weather pushed up rpices

Question 8

how do you calculate total expenditure in each period and how do you calculate the price index for period 2

Answer 8

Weight x Price
period 1 is the base period and is allocated the index number 100
totalexp2/totalexp1

Question 9

what is inflate rate

Answer 9

the rate of change in the price from one period to another (P2/P1) percentage difference