ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Some price changes are given more importance than others in the index
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All price changes are equally important
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price changes in energy would have less relevance than price changes of window cleaning
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None of the above
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Detailed explanation-1: -A consumer price index (CPI) is usually calculated as a weighted average of the price change of the goods and services covered by the index. The weights are meant to reflect the relative importance of the goods and services as measured by their shares in the total consumption of households.
Detailed explanation-2: -The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas.
Detailed explanation-3: -Significance of CPI CPI depicts how the changes in price levels affect heterogeneous customers. Also, it helps the government in formulating fiscal policies, price policy, tax policy, etc. Thus, it helps the government in calculating the risks taken for development without changing the cost of living.
Detailed explanation-4: -The CPI is obtained by comparing, over time, the cost of a fixed basket of goods and services purchased by consumers. Since the basket contains goods and services of unchanging or equivalent quantity and quality, with the use of quality adjustment methods, when required, the index reflects only pure price change.
Detailed explanation-5: -The CPI changes are applied to estimate the price changes linked to the cost of living in the economy. The CPI is one of the most commonly used statistics for locating inflation or deflation periods.