I think you reflected well on these questions. Especially one question 3 where you mentioned that "By using the median price, it takes into account that extreme prices occur and it is not a general trend of where the prices are going. "
Good Job!

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The Bureau of Labor Statistics weight different items included the measure of the consumer price index because different products are given different weightings. For example, housing will have a larger payment compared to jewelry. Hence, having taken all measures in account, the Bureau of Labor Statistics will then take the weighted average –by adding up the total value of the changes and then dividing by the number of items in the group. Just as the video mentioned, housing gets greater weights than jewelry, which is a luxury, good.

2.What are some of the purposes the CPI figure serves? Why do we care about changes in the price level in an economy?
CPI measures the changes in the price level of consumer goods and services purchased by households. Therefore, it is important to us because people can see if inflation or deflation has happened or is going happen through the CPI figures.

3.What is one short-coming of the traditional method used for measuring the inflation rate using CPI?
CPI is often a long-term measurement. Therefore it is not perfect for measuring monthly price changes but better for long term inflation.

4.Why did the BLS decide exclude oil and food prices from its “core CPI” figure?

BLS decided to exclude oil and food prices because those factors are subject to large relative price swings that usually have nothing to do with inflation. Without the two factors, CPI would be more accurate than if those two factors were included.

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A very thorough response to question 3…I didn't even think to include baskets into my response. As well you brought up discounts which could also skew the data (make it seem like a price change when really there was no price change), which is also a good example!
Nadiya

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4.Why did the BLS decide exclude oil and food prices from its “core CPI” figure?
These products are constantly changing values so it is better to keep them seperate from the core CPI, because than the CPI will more acurately reflect the inflation rate (with the oil and food prices included, relative price changes would be skewing results)

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2.What are some of the purposes the CPI figure serves? Why do we care about changes in the price level in an economy?
During inflation, we change the cost of living, and of many other products that are used everyday. These price levels are important because they directly affect the consumer and the consumers spending capacity, and the consumer's money that is left over after paying for all the essential products…which will lead to changes in AD.

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In reference to your response to question 4, not only are they easily affected by consumers but external factors that humans have no control over as well. Take weather as an example of a factor, there is no say as to when bad weather will strike and how much it will affect corps or nature in general.

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Consumer Price Index (CPI) can be used to measure the changes in inflation rate or purchasing power of consumers. On top of that, it is usually used in helping modify the cost of living, social security, tax etc.

3.What is one short-coming of the traditional method used for measuring the inflation rate using CPI?

The CPI figure is a fixed-weight price index. As such, it would overstate the adjustment in the cost of living. This is due to the structural changes that take place in the long run, the supply change due to the response of consumers, the assumption of a ‘typical’ household, and the fact that it does not take into account commodity and producer prices.
4.Why did the BLS decide to exclude oil and food prices from its “core CPI” figure?
Oil and food prices are commodities. This means that the market price of these two items fluctuates without warning. Therefore, there is a large price swing whenever a factor affecting price changes and will These products are always subject to large relative price swings, and so they will mislead inflation. This will result in an unstable increase in inflation.

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The BLS gives a higher weight to goods that consumers spend a larger proportion of their income on when compared to goods that not as many consumers purchase. For example, housing will have a higher weightage in comparison to luxury goods like jewelry. This is done to get a better picture of the spending of consumers.

2. What are some of the purposes the CPI figure serves? Why do we care about changes in the price level in an economy?

Since the CPI compares the value of a set amount of goods and services in one year to the value of the same amount of goods and services in the base year, it measures inflation or deflation.

3. What is one short-coming of the traditional method used for measuring the inflation rate using CPI?

In many countries, consumers increasingly make use of discount stores and sales since they are able to obtain come goods and services at a lower price. These prices are lower than the ones used for the CPI calculations, and therefore the CPI would overstate the degree of inflation, making it seem worse than it is.

4. Why did the BLS decide exclude oil and food prices from its “core CPI” figure?

The oil prices are very volatile are subject to a lot of fluctuations within that year. Food prices are also easily influenced by the consumer’s demand and they can often experience fluctuations in price that have a big impact on the CPI. These changes in price are called relative price changes and they do not show inflation and so they are not included in the core CPI.

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2.What are some of the purposes the CPI figure serves? Why do we care about changes in the price level in an economy?
The CPI leads to us making changes in cost of living, social security, and taxes. We care about changes in price level because they affect consumers who need to pay these prices; when inflation increases and prices go up, people will have to spend more money on the same products, meaning they have less money left over, which affects them financially.

3.What is one short-coming of the traditional method used for measuring the inflation rate using CPI?
The problem with measuring inflation with the CPI is that it can be pushed by price swings in the short run. If one item (the video uses the example of tea) rises so much in price that it drives up the CPI, it can affect the measured inflation rate, even though it is not a rise in the general price level, but rather a spike in the cost of one thing we buy.

4.Why did the BLS decide exclude oil and food prices from its “core CPI” figure?
These products are always subject to large relative price swings, and so they distort the view of inflation. By discluding these products, the numbers will see a more stable increase and so will more accurately reflect inflation, rather than just relative price changes.

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It would take into account a price change that may not have been sustained; for example, if there had been a sudden drastic increase in demand for a product which, despite having a low weighting, managed to change the CPI by a significant amount purely based on the extent to which the price rose, then this would be reflected as inflationary. However, it is not really a sustained rise in the general price level.

These markets are volatile, and prices of these goods can change without being sustained, e.g. when food comes in and out of season, or when there is an oil shortage – the price of oil may then decrease if a new, bountiful source is discovered.

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