The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a 'basket of goods and services' a 'typical consumer' would purchase. Each good and service is assigned a 'weight' or the percentage of income spent on that product. For example, 'cakes, cupcakes, and cookies' are given a weight of 0.197. This means that about 0.2% of the 'average' household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumers.
Part I
Considering your household budget, divide up your spending into these eight broad categories:
Category
CPI Weight
Your Budget
Food and beverages
14.8
Housing
41.5
Apparel
3.6
Transportation
17.3
Medical Care
6.6
Recreation
6.3
Education & Communication
6.4
Other
3.5
Total
100
100
How closely does your household spending correlate to the typical consumer? How might your household be disproportionately affected by a change in one of these broad categories? Do you believe that the government's weightings are an accurate approximation for the whole economy?
The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a 'basket of goods and services' a 'typical consumer' would purchase. Each good and service is assigned a 'weight' or the percentage of income spent on that product. For example, 'cakes, cupcakes, and cookies' are given a weight of 0.197. This means that about 0.2% of the 'average' household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumers.
Part I
Considering your household budget, divide up your spending into these eight broad categories:
| Category | CPI Weight | Your Budget |
|---|---|---|
| Food and beverages | 14.8 | |
| Housing | 41.5 | |
| Apparel | 3.6 | |
| Transportation | 17.3 | |
| Medical Care | 6.6 | |
| Recreation | 6.3 | |
| Education & Communication | 6.4 | |
| Other | 3.5 | |
| Total | 100 | 100 |
How closely does your household spending correlate to the typical consumer? How might your household be disproportionately affected by a change in one of these broad categories? Do you believe that the government's weightings are an accurate approximation for the whole economy?
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The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a basket of goods and services a typical consumer would purchase. Each good and service is assigned a weight or percentage of income spent on that product. For example, cakes, cupcakes, and cookies are given a weight of 0.197. This means that about 0.2% of the average household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumer's.
Part I
Consider these specific categories:
|
Category |
CPI Weight |
Your Budget |
|
Health Insurance |
0.5 |
|
|
Jewelry |
0.3 |
|
|
Household Cleaning Supplies |
0.4 |
|
|
Gasoline |
4.9 |
|
|
Food Away from Home |
5.9 |
How closely does your household spending correlate to the typical consumer's? Is it realistic that the typical household spends about as much on health insurance as it does on cleaning supplies? Should the Bureau of Labor Statistics adjust its CPI weights after the new federal health care mandate starts? What might this mandate do to inflation? In an economic contraction, what would you expect to happen to spend in each of these categories, if health insurance is mandated?
