copyright © 2008 pearson education, inc. slide 3-1 index numbers an index number provides a simple...
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Copyright © 2008 Pearson Education, Inc. Slide 3-3 The Consumer Price Index The Consumer Price Index (CPI) is based on an average of prices for a sample of more than 60,000 goods, services, and housing costs. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt 3-DTRANSCRIPT
Copyright © 2008 Pearson Education, Inc. Slide 3-1
Index Numbers
An index number provides a simple way to compare measurements made at different times or in different places.
The value at one particular time (or place) must be chosen as the reference value.
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valueindex number = 100
reference value
*Tells you what percent the value is of the reference value
Copyright © 2008 Pearson Education, Inc. Slide 3-2
Index Numbers
Example: Suppose the current price of gasoline is $3.20 per gallon. Using the 1975 price of 56.7¢ as the reference value, find the price index number for gasoline today.
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The current price is 564.4% of the 1975 price.
Copyright © 2008 Pearson Education, Inc. Slide 3-3
The Consumer Price Index
The Consumer Price Index (CPI) is based on an average of prices for a sample of more than 60,000 goods, services, and housing costs.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
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Copyright © 2008 Pearson Education, Inc. Slide 3-4
Consumer Price Index (pg. 190)
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Inflation
The rate of inflation from one year to the next is usually defined as the relative change in the
Consumer Price Index.
“If I had to populate an asylum with people certified insane, I’d just pick’em from all those who claim to
understand inflation.”
-Will Rogers
Copyright © 2008 Pearson Education, Inc. Slide 3-5
Copyright © 2008 Pearson Education, Inc. Slide 3-6
Adjusting Prices for Inflation
Given a price in dollars for year X ($X ), the equivalent price in dollars for year Y ($Y ) is
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where X and Y represent years.