Consumer Price Index ( Cpi )

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Consumer Price Index (CPI) The consumer price index is a measurement of the changes in price levels of the market basket for consumables in terms of services and goods purchased by households. It is a statistical estimate that is constructed with the use of sample prices of representative goods or services collected periodically. CPI is the benchmark guide for inflation used by economists to make adjustments on cost of living. As the main GDP indicator, CPI determines the fluctuations in the interest rates which are determined by its stability. It is also important to note that CPI is swayed by many other factors such as food security, political environment and geographical factors such as floods and earthquakes among others. When compared to the US economy, the Australian economy has experienced higher inflation rates as a result of natural calamities, the size of its economy compared to the US and the economic indicators that lead to a good economy ( Garner, 1999). Exchange rate According to Gittins (2009), the Australian dollar at the blink of global financial recess in 2008 changed at US 98c. The surge did not last for long because of the near collapse of the world economy towards the end of the same year, 2008. The main measurement of the Australian dollar against other currencies is the Trade Weighted Index (TWI) which is weighted in accordance with the significance to trade flows in Australia. However, Australian dollar fluctuations against the US dollar are larger that the WTI. The reason behind is that TWI only concentrates on the rise and fall of the Australian dollar. Trade - exports and imports When talking of exports and imports, an economist looks at the trade balances as a measure of economic health of any governme... ... middle of paper ... ...inst same experiences. Having felt the crunch, Australia had put in better safeguards in the economic crunch of 2008-2009 and this prevent the economic damage experienced in the rest of the world. Both countries have been accused of having selfish and ‘too tight’ monetary policies. According to Mason (2014), Australia’s finance minster was quoted saying the “emerging markets would have to wean themselves off the ‘morphine’ of easy money.” The statement was an indication of the great sacrifices the country was ready to make in order to avoid a recurring recession (Stonecash, Gans, King and Mankiw, 2009). (e) Write a short prediction of the macroeconomic outlook each country. Which of the two countries, Australia or USA, is more likely to experience a recession or expansion soon? With the monetary and fiscal safeguards instituted in both countries they have recorded
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