Explain how the Consumer Price Index works. - Leaving Cert Business - Question 6 - 2022
Question 6
Explain how the Consumer Price Index works.
Worked Solution & Example Answer:Explain how the Consumer Price Index works. - Leaving Cert Business - Question 6 - 2022
Step 1
Definition of the Consumer Price Index (CPI)
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Answer
The Consumer Price Index, or CPI, measures the overall change in the prices of goods and services that people typically buy over time. It is a key indicator of inflation and is used to gauge the cost of living.
Step 2
Methodology of CPI Calculation
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Answer
The CPI calculates this change by collecting prices of approximately 53,000 items every month. These items are categorized across various sectors, such as food, housing, and transport, to ensure a comprehensive overview of consumer expenditures.
Step 3
Comparison of Prices
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Answer
The collected prices are then compared to the corresponding prices from the previous month. This allows for the calculation of percentage changes in prices, which collectively reflect inflationary trends and cost-of-living adjustments.
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