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Q. Explain the problem involved in consumer price Index?
To explain the problems involved in calculating CPI we consider MP3 players. If you measure the average price of MP3 players at two points in time, let's say one year apart, you possibly will find that average price hasn't changed.
Though, this isn't the whole story because the products on the market would have changed. Characteristically, products at the later measurement are more advanced than products at the first measurement. If you were to compare prices of MP3 players with same performance, you would possible find that prices have fallen. Without adjusting for changes in quality andperformance, you will generally overestimate the rise in price index.
Describe how price level evolves over time Using the time series we can study how price level evolves over time. If all prices rose by 2% during one month, price level would ri
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