Visit the Bureau of Labor Statistics website for the CPI (www.bls.gov/cpi) and f

Question

Visit the Bureau of Labor Statistics website for the CPI (www.bls.gov/cpi) and find the latest new release. Table 1 in that release presents CPI data for all items and also for many individual categories.

How much has the entire index changed (in percentage terms) in the past year?

Pick out the five individual categories that have increased the most in the past year. What are they?

True or False: Shoe-leather costs typically increase with rate of inflation.

     3. Multiple Choice: Which of the following spending categories makes up the largest portion of the CPI market basket?

    A.     travel (includes paying for gas)

    B.     housing

    C.     entertainment

    D.     food

     4. Suppose that prices and wages both double next year. What is true about next year compared to this year?

    A.     Nominal wages are higher and real wages remained constant.

    B.     Nominal wages and real wages are both higher.

    C.     Nominal wages are higher and real wages are lower.

    D.     Nominal wages increased and real wages decreased.

Explanation / Answer

1)

(a) The entire index has changed by 0.20% in last year (From the BLS CPI table released Aug 2015, latest available)

(b) Top-5 increases are in:

- Medical care commodities: 3.4%

- Shelter: 3.1%

- Services (less energy services): 2.6%

- Medical care services: 2.2%

- Transportation services: 2.1%

2) Inflation increases the shoe-leather costs. The statement is correct.

3) Option (D): Food occupies the largest proportion in the CPI basket.

4) Option (A)

Real wage = Nominal wage / Price level

If Both nominal wage & price level increase, real wage remains constant.

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