Measurement of inflation, Managerial Economics

Measurement of Inflation

The rate of inflation is measured using the Retail Price Index.  A retail Price Index aims to measure the change in the average price of a basket of goods and services that represents the consumption pattern of a typical household.  It estimates the change in the cost to consumers of a range of commodities that they typically buy.  It is usually prepared for different classes of consumers and for different areas. 

The calculation of the index requires:

  • Selection of commodities to be included in the consumers basket
  • Selection of the base period weights for each commodity
  • Date on prices of the commodities in the current period and in the base period

Such an index then estimates the cost of living or the purchasing power of incomes. If the index increases by 10% in a given period, wages would need to rise by 10% for purchasing power to remain constant.  It is in this regard that trade unions and workers demand that wages should increase pari-passu with the cost of living index.

Posted Date: 11/30/2012 4:43:14 AM | Location : United States







Related Discussions:- Measurement of inflation, Assignment Help, Ask Question on Measurement of inflation, Get Answer, Expert's Help, Measurement of inflation Discussions

Write discussion on Measurement of inflation
Your posts are moderated
Related Questions
Q. Illustrate Internal Economies of Scale? Internal economies of scale are the benefits of large scale production. They are enjoyed by the firm when it increases its scale of p

Harrod Domar Theory A basic principle that has been stressed by both Harrod and Domar in their growth models and which has been incorporated in all modern growth theories is th

Bank Rate Bank rate is the rate at which the central bank gives loans to the commercial banks against the security of government and other approved first class securities. In

The computer graphics chip industry is one with a little number of competitors that earn normal economic profit. Two chip manufacturers, NVIDIA and ATI both face the prospect of lo

DIRECT TAXES A direct tax is one where the impact and incidence of the Tax is on the same person e.g. Income Tax, death or estate duty, corporation taxes and capital gains

Direct control and Moral Suasion Without actually using the above weapons, the central bank can attempt simply to use "moral suasion" to persuade the commercial banks to restr


It is presumed that every of the different combinations of capital and labour displayed in Table produces the same level of output, which is, 20 units. Combinations are such that i

The optimum output and price level is always determined with the concepts of revenue and costs-the difference in joint or independent production will show in the differences in cos

Limitations of Open Market OperationsLimitations For their success central bank open market operation assume that commercial banks in the country will expand their credit port