how to construct a CPI?
Answers
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1 .Find a record of past prices. Grocery receipts from the past year would work well for this purpose. For accurate calculations, use a sampling of prices based on a relatively brief period of time--perhaps just one or two months of the previous year.
2 . Add together the prices of the items purchased previously. Using the record of past prices, add together a sampling of those product prices.
3 . Find a record of current prices. Again, receipts would function well for this purpose.
4 . Add together the current prices. You must use an identical list of items as you used when you added the prices of past items together. For example, if one loaf of bread was in your first list, one loaf of bread must be part of the list of current prices.
5 . Divide current prices by the old prices. For example, if the total of current prices amounted to $90 and the old prices equaled $80, the result is 1.125 (represented mathematically, 90÷80=1.125).
6 . Multiply the result by 100. The baseline for the CPI is 100--that is, the initial reference point, when compared to itself, equals 100%-- and so make your figure comparable.
Think of the CPI as a percentage. Past prices represent a baseline, and that baseline is described as 100% of itself.
7 .Subtract 100 from the new result to find the change in CPI. By doing this, you are subtracting the baseline--represented by the number 100--to determine the change over time.
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