next to be discussed before the mid-term exam..............

1. CONSUMPTION AND DEMAND-SIDE ECONOMICS Sub-topic: Consumer Price Index (CPI)

3. Price Index =a normalized average of prices for a given class of goods or services in a given region, during a given interval of time

5. measures changes in the cost of buying a representative fixed basket of goods and services

7. SENSITIVE PRICE INDICATOR (SPI) …designed to assess price movement of essential consumer items at short intervals (on weekly basis ).

9. SPI is computed to assess the price movement of essential commodities at short interval of time to review the price situation in the country.

12. It tells how much cost of living has risen or fallen due to price changes irrespective of changes in consumer behavior or quality of goods.

14. EXAMPLE FOR COMPUTATION OF CPI ITEM UNIT BASE PRICE (Po) PRICE IN MAR, 06 (Pn) WEIGHT (Wi) Pn / Po Po / Pn x Wi Moong Pulse Kg 29.91 47.61 0.2230 1.5918 0.3550 Mash Pulse Kg 45.01 52.72 0.2017 1.1713 0.2363 Masoor Pulse Kg 36.23 44.03 0.2214 1.2153 0.2691 Gram Pulse Kg 28.99 31.50 0.4272 1.0866 0.4642 1.0733 1.3246 ( Pn/Po) x Wi Index = -------------------------------- x 100 Wi 1.3246 I = -------------------------- x 100 = 123.41 1.0733

15. Limitations of CPI Coverage is limited. Only covers urban areas. Prices may have different trend in rural & urban areas. Rent is computed through construction input items index instead of rent survey. It measures partially inflation not total consumer’s expenditure.

16. Inflation Rate Definition In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances.

17. Inflation Rate in %