Introduction and Alignment

The Consumer Price Index (CPI) is one of the most well-known measures of the price level. Measured by the Bureau of Labor Statistics (BLS), the Consumer Price Index is based on the price for a hypothetical market basket of goods for a typical consumer and compares how the price changes over time. The Consumer Price Index seeks to measure the change of one period to another, and can be very useful in determining inflationary trends.

Upon completion of this assignment, you should be able to:

• Analyze the effects of inflation on costs and price strategies.

Resources

• Media: Chapter 16, Animations 16.1–16.5
• File: Chapter 16 Animation Transcripts
• Websites:
  • What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation? http://www.federalreserve.gov/faqs/economy_14419.htm
  • Why does the Federal Reserve aim for 2 percent inflation over time? http://www.federalreserve.gov/faqs/economy_14400.htm
  • Inflation and the Federal Reserve: The Consequences of Political Money Supply: http://www.cato.org/publications/policy-analysis/inflation-federal-reserve-consequences-political-money-supply
  • The Fed Explains Inflation: http://www.frbatlanta.org/news/multimedia/12fedExplained_inflation.cfm
  • The Inflation Project: http://www.frbatlanta.org/research/inflationproject/tutorial.cfm

Background Information

The Consumer Price Index is a valuable tool for measuring inflation over time. The CPI is measured using urban consumers who spend their money on a “market basket of goods” that include food and beverages, housing, apparel, transportation, medical care, recreation, education, communication, and other services. The change in CPI is based on current and base year prices.

Instructions

1. Watch the following animations. To move through the animation sequence, click Next until you reach the end of that animation sequence. These animations will prepare you for the discussions and other assignments in this and upcoming workshops.
   1. Animation 16.1
   2. Animation 16.2
   3. Animation 16.3
   4. Animation 16.4
   5. Animation 16.5
2. Review the information available on the following websites. You will use that information to answer the questions below.
   1. What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation? http://www.federalreserve.gov/faqs/economy_14419.htm
   2. Why does the Federal Reserve aim for 2% inflation over time? http://www.federalreserve.gov/faqs/economy_14400.htm
   3. Inflation and the Federal Reserve: The Consequences of Political Money Supply: http://www.cato.org/publications/policy-analysis/inflation-federal-reserve-consequences-political-money-supply
   4. The Fed Explains Inflation:http://www.frbatlanta.org/news/multimedia/12fedExplained_inflation.cfm
   5. The Inflation Project: http://www.frbatlanta.org/research/inflationproject/tutorial.cfm
   6. After watching the animations and reviewing the information on the preceding websites, respond to the following:CPI: Inflation Picks Up
      According to the BLS, the CPI rose 3.8% in August of this year compared to a year earlier. Food prices rose 4.6% and clothing prices were up 4.2%, while new car prices rose 3.8%, and medical care was up 3.2%.
      1. What percentage change in the CPI up until August is accounted for by the changes in the prices of food, clothing, and medical care?
      2. Given the changes in food, clothing, and medical care, by what percentage did the prices of the other items in the CPI basket change?
         1. Why did the prices of the other items change?
         2. What is the probable impact of the change of other items in the CPI basket?
3. You must incorporate a minimum of three sources in addition to the textbook in this assignment. Your three sources may include scholarly sources, credible newspapers, trade journals, or websites listed here. Be sure to use OCLS to find these sources.
4. Your entire assignment must be APA formatted.
5. When you have your assignment, save a copy for yourself and submit a copy to your instructor using the Dropbox by the end of the workshop.

Click here to access the Dropbox.