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Inaccuracies Of The Consumer Price Index (CPI)
Part one of term paper
Inaccuracies of the Consumer Price Index (CPI)
The Consumer Price Index is a measure of the prices of a fixed market
basket of some 300 consumer goods and services purchased by a "typical" urban
consumer. The 1982-1984 period serves as the base period so analysts can compare
other year's changes with this base period. The composition of the ...
Part two of term paper ... has been said to be inaccurate.
First, consumers do change their spending patterns. Even though the
composition off the market basket is assumed not to change, it does because
consumers change their spending patterns. Because consumers substitute lower
priced products in lieu of higher priced ones, the weight has shifted. The CPI
assumes that this does not occur and therefore it overcompensates the standard
of living.
Secondly, because the base period was over a decade ago, the quality of
the pro ...
Word count: 452 | Approximate pages: 2
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