Consumer Price Index (CPI) is used to measure the aggregate price level. This index plays an important role in the economy as the rate of inflation in the economy is assessed by the percentage changes in the CPI. The U.S. Bureau of Labour Statistics (BLS) is in charge of calculating the CPI by studying the retail prices and the change of the cost of the basket of goods purchased by a “typical” consumer. The BLS reports the CPI every month. There are a few steps to measure CPI, first, the base year which the economy and prices are stable is chosen. Then, the basket of goods which consists of the goods and services that a typical household would use is selected. After that, the prices of thee selected goods are obtained through surveys and finally each item is given different weightage to determine the importance by recording the amount of money that the consumer spends on each item. Each and every step is important for the results of the CPI, when there are some mistakes in the procedure, there will be bias in the CPI, which will fail to reflect the real cost of living. Lebow and Rudd list out several sources of bias in the CPI, such as upper-level substitution bias, lower-level substitution bias, new-outlet bias, weighting bias and quality-change and new-items Bias. Upper-level substitution bias happens when the increases in the true cost of living is overstated as the CPI neglects the consumer’s substitution make due to the changes in relative prices. This bias, which was only 0.1% to 0.2% per year, increased a lot in the late 1990s. Another substitution bias which takes place within the item-area strata, and bias from unable to capture this kind of substitution is known as lower-level substitution. The authors argue that this ... ... middle of paper ... ...that occurs in the measurement of the CPI. Even though each source of bias are not large, but when each small bias combine together and being derived into the CPI, the level of bias increases. It is important for the policy makers to notice about this and put more effort into making the survey and recording of the data. For instance, when the BLS is conducting the survey of the consumption of bread, it can request all the members in a household to respond to the investigation instead of just letting the household head to answer. Other than that, the survey of the price and weightage of the goods and services consumed can be carried out more frequently so that the details are up to date. This might improve the condition of undercounting or expenditures. As the CPI is derived from the data collected, the more accurate data can help to increase the accuracy of the CPI.
CPI, or Consumer Price Index, was relatively steady during this period of time. There were only four months of negative CPI during 2000-2001. The highest point was in March of 2000 reaching 0.588, while the lowest point was found in October of 2001 at -0.337. This is the main measure of inflation in the United States, which is done by the Bureau of Labor Statistics (BLS).
The upper and lower quintile is represented by 20 percent, however over the last two decades Australians are noticing a change in the gap between inequalities. In Australia a study by the Australian Bureau of Statistics found that in 1994-1995 the lowest quintile of income earners was at 7.9% which in 2007-2008 was found to be 7.6% meaning that over the 17 years there has been an increase in the lower quintile by .3%. The highest quintile in the years of 1994-1995 was 37.8% this increased in the 17years between the two recordings and in 2007-2008 was observed to be 1.6% larger with 39.4%. This data indicates that the percentage of people in the lowe...
Economic indicators are Governmental statistics, released on a regular basis, which indicate the growth and health of a country. Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth as well as Real Gross Domestic Product (GDP). Real GDP is so called because the affects of inflation and depreciation are accounted for in the figures.
Gross domestic product (GDP) is one of the best ways to measure how a country’s economy is doing. A main component in figuring the GDP is personal consumption expenditures. Personal consumption expenditures accounts for about two-thirds of domestic
A trend analysis of the unemployment rates, inflation, nominal GDP, and real GDP were tabulated and graphed as shown below. From the graphs, it is evident that inflation and unemployment rates have a non-deterministic curve and fluctuate over time. The progression occurs because inflation and unemployment can be caused by many other factors apart from the economic growth (Mankiw 58). For instance, changes in international market prices, advancements in technology, and the use of different methods of production.
Bureau of Labor Statistics. This report reveals the unemployed rate in the US, except government, farm and non-profit workers. That covers some 80% of the US working force. A decrease in the unemployed rate, i.e. there are more people working, usually indicates the market is growing. As a result the American Dollar will grow stronger. If a trader speculated that beforehand, and opened buying positions prior to the announcement – the outcomes would be to his favour. Naturally, if the unemployed rate rises the Dollar will weaken. Either way, the NFP and the speculations beforehand will cause vibrations in different
In their report, Lebow and Rudd conclude that the USA’s CPI overestimates increases in the cost of living by 0.87%, within a range of (0.3%-1.4%). This figure can be broken down into five constituent categories of bias: new outlets, weighting, lower-level substitution, upper-level substitution and quality change or new items. The former three have a significantly smaller effect on the bias, making up only 0.2% of the 0.87% estimate. New outlet bias, said to make up 0.05%, occurs because the CPI only uses changes in quality to explain price differences between old and new outlets.This fails to take into account shifts in buying patterns which often cause price changes. Weighting bias, which had prev...
Price elasticity plays an important role in the lives of consumers. The price elasticity of demand is the sensitivity of the demand for a product when its price changes (McConnell, Brue, & Flynn, 2009)iv. Cafes like Panera Bread refuses payments from customers and politely asked them instead to “take what you need, and leave your fair share” (Strom & Gay, 2010)v, resulting in more people getting goods like food at a fair price that they are willing to pay. Based on the income elasticity of demand, consumers can get a better and healthier life as they will buy things with better quality as their income rises. People will go to Italiannies for pizza and not to Pizza Hut as Italiannies offers a better, tastier, healthier and wider variety of choices, even when it is more expensive. With cross elasticity of demand, consumers can get the same quality product at a cheaper price as the rivalry between substitute goods will result in price reduction or improved quality. Consumers get to travel by MAS Airlines at a cheaper price as the rivalry between MAS and other airline companies has caused its price reduction (Gunasegaran, 2011)vi. Consumers with a low budget can also buy what they need. Consumers can get more value from a package offer when buying complementary goods as they “go together”, for example: McDonald's McValue Lunch which comprises of a burger, fries, and soft drink, all for only RM5.95 onwards (My Food Fetish, 2009)vii. With this, consumers can get convenience when buying certain products.
Sampling bias (pg. 112) – a sampling method can be called biased if the results of the research found favors the outcome the researcher is looking for. The researcher ultimately controls/influences whether the results are biased and potentially misleading. If a researcher thinks that football players are more susceptible to concussions, the researcher may only look at specific positions where the players take more hits to the head for their research which could affect the results looking at football players as a whole.
Inflation refers to an increase in overall level of prices within an economy. In simple words, it means you have to pay more money to get the same amount of goods or services as you acquired before. By contrast, the term unemployment is easier to understand. Generally, it refers to those people who are available for work but do not find a work. And unemployment rate, which is the percentage of the labour force that is unemployed, is usually used to measure unemployment (Mankiw 1992).
The economy in the United States was recently experiencing what is now called the Great Recession which occurred from December of 2007 to June of 2009. During this recession we experienced a decrease in our gross domestic product and experienced an increase to our unemployment. Since 2003 the American economy has been seen inflation rates as low as .1% in 2008 and as high as 4.1% in 2007. Rates such as these detail the increase and decrease in prices of products throughout the economy and has a considerable influence on the supply and demand of goods from cars to bread. In the past ten years inflation rates have continually seen positive values w...
The GDP is the total aggregate income of the United States. It is comprised of consumption, investment, government spending, and net exports. The GDP in the fourth quarter of 2000 grew at a 1.1% annual rate, the lowest since a 0.8% increase in the second quarter of 1995. The below par performance in GDP is due to those factors that comprise the GDP. The most important of which is consumption. Consumption in the United States has been less than expected mainly due to low consumer confidence. Consumer confidence has hit a 10 year low with an index of 106.8 as reported by Alan Greenspan. In the past 2 months the index number has plummeted nearly 22 points, the biggest decrease since the 1990-1991 recession. The reason for this recent drop in consumer confidence is due to several key factors. One factor is the poor performance of the stock market. The Dow Jones is down from its peak that was hit last year, but has now rebounded slightly. The Nasdaq took a dive with the decrease in the prices of tech stocks. The Nasdaq has fallen nearly 56% from its peak in March of 2000. The Wilshire 5000, which is a broader market, is also down by about 22%. Also a factor in dropping consumer confidence is the fear of more layoffs by major employers. The media has paid a lot of attention to large layoffs of companies, yet the labor markets still remain fairly tight. The natural rate of unemployment in the US is approximately 5%, which is higher than the actual rate...
Finally, professor Prest considering the effect of price inflation, he concluded indicators of excess public revenue over expenditureare both relatively to the GNPhe told that if the income of the people will raise they will also facing the price inflation because higher the income pays higher incometax, no matter whether the increase in income is real or not. On the other side of expenditure, if cost of the state is raising, people wanted to make heavy demand on the social services so the relative price effect are depending upon the inflation rate . For instance if the rise in money wages and the share of total wages cost rise then its pushes up the inflation in the public sector.
The second portion of macroeconomics is macroeconomic fundamentals. Consumer price index was in the fundamentals to talk about food and beverages housing , transportation metal gear ,and recreation ,education and communication and other goods and services that may be overlooked we talked October our temperatures in the basket market economy and we discuss the percentage of change in income
All government’s ultimate goal is to maintain a strong and sustainable economy but there are so many factor to consider in making it work right. Economic is a complicated matter but is very important. The government is there to look after its people and one of their goal is to provide everyone a better/higher standard of living. In this report we would like to look at the Philippine economy using the concept of Inflation and will extend the report to the importance of GDP