2.  Officially known as the “Consumer Price Index for All Urban Consumers”.  It covers the purchases of about 80% of the US population (rural areas are not included).  Measures the change in the prices of goods and services over time (measures the buying power of the dollar).  As the CPI increases, payments such as Social Security, government and military pensions, also increase (to meet the buying power of the dollar).

3.  Information is collected by a sample survey (Consumer Expenditure Survey) which gathers detailed information on the spending of 29,000 households each month.  The Bureau of Labor Statistics breaks the spending down into categories and then chooses certain items to represent each group. This is updated regularly over time to accommodate changing buying habits (changing from albums to tapes to CDs to …)

4.  There are 8 main categories which all consumer goods and services fall into: ◦ 1. Food and Beverage ◦ 2. Housing ◦ 3. Apparel ◦ 4. Transportation ◦ 5. Medical Care ◦ 6. Education and Communication ◦ 7. Recreation ◦ 8. Other Goods and Services

6.  Example: Index number = 125 ◦ 125 means 125% of the base value (or a 25% increase).  Example: Index number = 80 ◦ 80 means 80% of the base value (or a 20% decrease).

7.  “1982-84 =100” is a statement most often used to compare index numbers.  The Consumer Price Index average during the years 1982-84 was 100, so 1982-84 is used as the base period for the CPI.  In simplest terms, the CPI compares what was you could buy for $100 in 1982-84 and what you would have paid for the same product in a different year. Years prior to 1982-84 have lower CPI’s; years after 1982-84 have higher CPI’s.

8. The most current Consumer Price Index (December, 2011) was 225.672, with an annual average of 224.939.

9.  2003:184.0  2004:188.9  2005:195.3  2006:201.6  2007:207.342  2008:215.303  2009:214.537  2010:218.056  2011:224.939

10.  An index number for the total cost of a fixed collection of goods and services. Good or Service 1990 Quantity 1990 Price 1990 Cost 2000 Price 2000 Cost Salt100 lb.$0.50/lb$ 50.00$0.80/lb$ 80.00 Kerosene50 gal.$1.00/gal$ 50.00$1.00/gal$ 50.00 Welding10 hr.$14.00/hr$140.00$23.00/hr$230.00 Total$240.00$360.00 Base value is $240. The price for the goods has increased by 50% from 1990 to 2000. Comparison must be of identical items.

11.  Because the Consumer Price Index goods and services changes with the changing buying habits of the public, it cannot be considered a true “fixed market basket price index”, since it doesn’t compare identical items all the time.

14.  Real incomes increased from $37,010 to $42,151 (in yr. 2000 dollars). This was only a 14% increase, not a 238% increase as it appeared

15. Time will tell.

16.  Keep working on your Chapter 5 assignment…  Remember, your assignment is due to me on Friday. If you won’t be in class on Friday, please e-mail it to me.  Keep working on your Chapter 5 assignment…  Remember, your assignment is due to me on Friday. If you won’t be in class on Friday, please e-mail it to me.