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CPI & Energy Prices from 1993-2002

MEASURING INFLATION IN THE UNITED STATES ECONOMY: A REVIEW OF THE CONSUMER PRICE INDEX (CPI), TOGETHER WITH A REVIEW OF ENERGY PRICES FROM 1993 THROUGH 2002

Inflation is a process of steadily rising prices that results in a steadily diminishing purchasing power for a specified nominal amount of money. Inflation occurs where the increase in price is for a good or service for which there has occurred no substantial change in the characteristics of the good or service (Schultze & Mackie, 2002).

Thus, an increase in the price of a potato from five-cents per pound to 10 cents per pound in a situation wherein the characteristics of the potato did not change would represent an inflationary increase in the price of potatoes. In contrast, an increase in the price of an automobile (from the same manufacturer and the same model) from $10,000 to $12,000 might not be inflationary if the automobile available at the higher price included a computerized ignition system, a computer-controlled braking system, and other technological enhancements not available on the earlier version of the automobile.

There are many measures of inflation. A well-accepted measure of inflation in the United States is the consumer price index (CPI). The CPI is available in several versions [e.g., all consumers or one of many sub-sets of consumers; and/or all goods or one of many sub-sets of goods; and not seasonally adjusted or seasonally adjusted).

The CPI is a measure of the average change in the prices paid by urban consumers for a fixed market basket of goods and services. Measuring price change through the use of a fixed market basket has a long history, dating to the early 1700s (Fixler, 1993). The assumption underlying the CPI is that consumers will choose the bundle of goods and services that maximizes the utility of their available funds, or alternatively minimizes expenditures to attain a desired level of utility (Fixler, 1993).

The CPI is a...

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CPI & Energy Prices from 1993-2002. (1969, December 31). In LotsofEssays.com. Retrieved 05:04, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1694048.html