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    Consumer Price Index

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    I am looking for 3 strengths and 3 weaknesses of the attached mock calculation of the CPI.

    What identifies these characteristics and if the CPI is imperfect, do we need to use it?

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    Solution Preview

    As you can see from the information provided, CPI uses a base year to track the changes in a specific basket of goods for a specific group of people. The basket of goods is intended to reflect all of the items a typical urban consumer buys to achieve some minimum standard of living in some base period (currently, 1982-1984). The basket is adjusted every ten years or so. The CPI does not count the price of each item equally but weights it according to its share of total household expenditures in the base period, so that changes in the index from one period ...

    Solution Summary

    3 strengths and 3 weaknesses of calculation of the consumer price index is examined.