Categories: Descriptive statistics

Consumer Price Index Use

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class="quads-location quads-ad1" id="quads-ad1" style="float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;</div>&NewLine;<a href="http&colon;//mba-lectures&period;com/statistics/491/consumer-price-index&period;html" target="&lowbar;blank" rel="noopener">Consumer price index</a> compares the price changes with changes in income, wage rates, retail sales etc&period; Consumer price index is also known as cost of living index and can be used to know whether income keeps pace with the cost of living&period; The importance of consumer price index can be illustrated with the help of purchasing power of rupee and deflation of per capita income&period;&NewLine;&&num;160&semi;&NewLine;&NewLine;<h3 style="text-align&colon; justify" align="justify">Purchasing power of Rupee</h3>&NewLine;&&num;160&semi;&NewLine;&NewLine;The purchasing power of a rupee is the reciprocal of consumer price index, multiplied by 100&period; It shows the value of a rupee received in current time period relative to base period prices&period; For example consumer price index of 1988 to the base year 1984 is 151&period;30 then P&period;P = 0&period;66&period; It means that rupee received in 1988 is worth 0&period;66 compared to the rupee received in 1984&period; In other words, the 1988 rupee is valued at 66&percnt; of a 1984 rupee, a decline in purchasing power of 34&percnt;&period;&NewLine;&&num;160&semi;&NewLine;&NewLine;Problem&colon; For the following consumer price index, calculate the purchasing power of rupee for each of the years&period;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class="quads-location quads-ad2" id="quads-ad2" style="float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;</div>&NewLine;&NewLine;&&num;160&semi;&NewLine;&NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image138&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="62" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb138&period;png" width="500" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;Solution&colon;&NewLine; &NewLine;&NewLine; &NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image139&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="40" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb139&period;png" width="400" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image140&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="211" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb140&period;png" width="400" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;<h3 style="text-align&colon; justify" align="justify">Deflation of Per capita Income</h3>&NewLine;&&num;160&semi;&NewLine;Consumer price index can be used to remove the effect of changing prices on per capita income by deflating the income expressed in current money by consumer price index&period; This relationship may be expressed as&semi; Real Rupee = (Current Rupee) × (Purchasing Power)&period; In this case real rupee is also known as constant rupee&period; For example the income of individual in 2010 is 30000 and the purchasing power of rupee is 0&period;66 (from 2000-2010) then his real income in 2010 as compared to 2000 is 30000&ast;0&period;66 = 19800&period; It shows that income of Rs 30000 in 2010 can purchase only Rs 19800 worth of goods and services at 2000 prices&period;&NewLine;&&num;160&semi;&NewLine;&NewLine;Problem&colon; Deflate the per capita income by the consumer price index given in the following table&period;&NewLine;&&num;160&semi;&NewLine;&NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image141&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="81" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb141&period;png" width="500" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;Solution&colon;&NewLine; &NewLine;&NewLine; &NewLine;Per capita income can be deflated by dividing it by the consumer price index and multiplying the resultant by 100&period;&NewLine;&&num;160&semi;&NewLine;&NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image142&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="38" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb142&period;png" width="350" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;<a href="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image143&period;png"><img title="image" style="border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" height="230" alt="image" src="http&colon;//mba-lectures&period;com/wp-content/uploads/2010/06/image&lowbar;thumb143&period;png" width="400" border="0" /></a>&NewLine;&&num;160&semi;&NewLine;&NewLine;Note&colon;&NewLine;That the changes in real per capita income are small as compared to those in current per capita income&period;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class="quads-location quads-ad3" id="quads-ad3" style="float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;</div>&NewLine;&NewLine;

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ssiow says:

December 3, 2010 at 9:23 am

if the question give CPI in 1989, and ask me find the real sale, how i do?
asiimwe richard says:

August 30, 2013 at 5:12 am

it has given a simplified example