l economists define \"inflation\" (or \"deflation\") as a change in prevailing p
ID: 1105687 • Letter: L
Question
l economists define "inflation" (or "deflation") as a change in prevailing price levels. Price leve Is are measured in a variety of ways, and reported from various sources, including the Bureau of Labor Statistics. These price level used as the base. One of these is "Urban All Items'; but when the Federal Reserve evaluates inflation rates, they often use a metric they call "Core" inflation. The index for Core inflation is the same as the All Items index, except that it deletes two important items. What are these two important items that are omitted when Core inflation is measured? sources will report price levels as indexed values, normalized to some historic 5) In class, we examined Bureau of Labor Statistics (BLS) indexed CPI data for Urban All items. Recall that CPI data is normally reported monthly. The index values for the seven months Mar'17-Sep "17 look like Mar 243.8 Apr 244.5 May 244.7 Jun 245.0 Jul 244.8 Aug 245.5 Sep 246.8 Using these data, answer the following questions: What was the annualized rate of price increase observed during each of the following recent periods of a) The month of Sep? b) the three months Jul-Sep? c)The six months Apr-Sep? 6) In CPI data from the BLS, the index value for Sep of 2001 is 178.1, while that for Sep 2017 is 246.8 Now, let's say you have a friend who bought a tailor-made suit in New York City for $690 last September. He's complaining that the tailor overcharged him, since he bought a similar suit from him in September of 2001 for just $500. You know that the comparison is not valid unless you adjust for inflation. To make that adjustment, you need to compute a price deflator. What would be the value of the deflator that would adjust Jul 2017 prices to the value of Jul 2001 dollars? Did the talor really charge more for the suit?Explanation / Answer
First question is answered below
4.
Two items which are excluded to calculate core inflation are:
1. Goods with highest or erratic price changes and volatility
2. Goods which hold a very less share in consumer budget
Exclusion of such items helps to calculate a stable value of core inflation
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