Thursday, July 24, 2014

Explain how a retail price index (index of consumer prices) is calculated. [7]

9. Explain how a retail price index (index of consumer prices) is calculated. [7]
Inflation is measured using retail price index or consumer price index. Using this instrument, a family expenditure survey is carried out where they choose a basket of sample goods and services where the household consumes most. These goods are given different weights depending upon the percentage of consumption and income spends on these goods. Then a year is chosen as a base year and index of the base year is given as 100. Eventually the change of index between the base year and current year is calculated.

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