CA Foundation Exam > CA Foundation Videos > Business Economics for CA Foundation > Calculating Consumer Price Index(CPI)
Calculating Consumer Price Index(CPI) Video Lecture | Business Economics for CA Foundation
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FAQs on Calculating Consumer Price Index(CPI) Video Lecture - Business Economics for CA Foundation
| 1. What is the Consumer Price Index (CPI)? |  |
Ans. 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 goods and services. It is used to track inflation and understand the purchasing power of consumers.
| 2. How is the Consumer Price Index calculated? | |
Ans. The Consumer Price Index is calculated by taking the weighted average of the prices of a basket of goods and services commonly purchased by urban consumers. The prices of these items are collected from thousands of retail stores, service establishments, and rental units across different geographic areas.
| 3. What is the significance of the Consumer Price Index? | |
Ans. The Consumer Price Index is significant as it helps in measuring inflation, which is the increase in the general price level of goods and services over time. It provides valuable information for policymakers, economists, and businesses to make informed decisions about wages, benefits, taxes, and monetary policy.
| 4. How is the Consumer Price Index used in adjusting wages and benefits? | |
Ans. The Consumer Price Index is commonly used to adjust wages and benefits to account for inflation. By linking wages and benefits to the CPI, individuals can maintain their purchasing power over time. For example, if the CPI indicates a 2% increase in prices, wages and benefits can be adjusted accordingly to ensure employees' real income remains the same.
| 5. How does the Consumer Price Index differ from the Producer Price Index (PPI)? | |
Ans. The Consumer Price Index (CPI) measures the prices paid by consumers for goods and services, while the Producer Price Index (PPI) measures the average change in prices received by producers for their output. The CPI reflects the perspective of the end consumer, while the PPI focuses on the perspective of producers.
Text Transcript from Video
consumer price index K suppose for
example there are three goods x y and z
fine x and y they are consumer goods and
z is is capital good note that there are
two years 2010 and 2011 because in 10 is
taken as the days here and and the price
of x in 2010 is say 3 quantity is 6000
price of x in 2011 is say 4 and quantity
is again 6000 price of y is say 2 and
quantity is 3000 price of Y in 2011 is 1
and quantity is say 2000 price of Z is
15 in year 2010 and quantity is say 1
while in year 2011 it is 100 and
quantity is 1 fine
so well you can see this that a typical
consumer
is consuming two units of X for every
unit of Y okay so two units of X for
every unit of Y so any ratio of X to Y
as to is to one will be fine clear so we
can calculate the value of the CPI
basket in 2010 as 3 into 2 plus 2 into 1
that is 3 into 2 is 6 plus 2 is 8 and
the price of the CPI basket in in year
2011 is it is 4 into 2 plus 1 into 1
that is 9 okay so CPI for 2010 would be
1 because 2010 is assumed to do this
here and Consumer Price Index for day CA
would be 1 while consumer price index
for 2011 would be price of CPI basket in
2011 which is 9 upon price of CPI basket
in year 2010 which is 8 which will which
will come out to be 1 point
1-1 something okay so 1.1 say well this
means that the price of the
representative basket of goods has
increased by 10 percent from 2010 to
2011 okay so this is the way you
calculate consumer price index in this
recording I haven't told you much about
what exactly is consumer price index how
it is different from GDP deflator this
is a very simple example just to tell
you that how do you calculate consumer
price index and note that you have not
included that capital good while
calculating consumer price index you are
just calculating the basket of
consumption goods fine when you were
calculating GDP deflator you would have
you would have assumed capital good also
because that is assuming that is that is
the price of all representative or
prices of all the goods and services in
the economy
example there are three goods x y and z
fine x and y they are consumer goods and
z is is capital good note that there are
two years 2010 and 2011 because in 10 is
taken as the days here and and the price
of x in 2010 is say 3 quantity is 6000
price of x in 2011 is say 4 and quantity
is again 6000 price of y is say 2 and
quantity is 3000 price of Y in 2011 is 1
and quantity is say 2000 price of Z is
15 in year 2010 and quantity is say 1
while in year 2011 it is 100 and
quantity is 1 fine
so well you can see this that a typical
consumer
is consuming two units of X for every
unit of Y okay so two units of X for
every unit of Y so any ratio of X to Y
as to is to one will be fine clear so we
can calculate the value of the CPI
basket in 2010 as 3 into 2 plus 2 into 1
that is 3 into 2 is 6 plus 2 is 8 and
the price of the CPI basket in in year
2011 is it is 4 into 2 plus 1 into 1
that is 9 okay so CPI for 2010 would be
1 because 2010 is assumed to do this
here and Consumer Price Index for day CA
would be 1 while consumer price index
for 2011 would be price of CPI basket in
2011 which is 9 upon price of CPI basket
in year 2010 which is 8 which will which
will come out to be 1 point
1-1 something okay so 1.1 say well this
means that the price of the
representative basket of goods has
increased by 10 percent from 2010 to
2011 okay so this is the way you
calculate consumer price index in this
recording I haven't told you much about
what exactly is consumer price index how
it is different from GDP deflator this
is a very simple example just to tell
you that how do you calculate consumer
price index and note that you have not
included that capital good while
calculating consumer price index you are
just calculating the basket of
consumption goods fine when you were
calculating GDP deflator you would have
you would have assumed capital good also
because that is assuming that is that is
the price of all representative or
prices of all the goods and services in
the economy
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Oct 24, 2024 Last updated |
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