Eco 561 Week 4 Inflation And Analyses Of Monetary Policies

Inflation and Analyses of Monetary Policies Name Eco/561 Tutors Name Date The consumer price index is a measure of changes in the price levels of consumer goods and services purchased by households. Changes in consumer prices from one period to another reflect inflation for the given period. Since it may not be possible to measure every item consumed in households a sample of goods and services is used to represent consumption expenditure in an economy (Mankiw, 2014). In this paper we will analyze the trends in overall inflation on items of outer garments used by a US household. US CPI Index In the United States, the consumer price index (CPI) basket contains 175 components. In the calculation of the consumer price index, the year over year rate of inflation of each component is multiplied by its relative weighting in the index. Weighting is used to reflect the relative importance of goods and services in the expenditure basket in terms of each items share of expenditure in the total consumption of households. For ease of comparison, weighting is consistent from one period to the other (Blanchard, 1989 Mankiw, 2014). In the US consumer price index calculation is a rigorous exercise that