...Consumer Price Index EC 601 – Fall 2010 December 3, 2010 Consumer Price Index (CPI) According to Mankiw the Consumer Price Index is a measure of the overall cost of the goods and services bought by a typical consumer. The Department of Labor’s subordinate branch the Bureau of Labor who is in charge of providing the Consumer Price Index of states that the Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a “market basket” of consumer goods and services. Some background into how the Consumer Price Index came about. The Consumer Price Index was initiated during World War I, when rapid increases in prices, particularly in shipbuilding centers, made an index essential for calculating cost-of-living adjustments in wages ("United states consumer," n.d.). To provide appropriate weighting patterns for the index, so that it would reflect the relative importance of goods and services purchased in 92 industrial centers in 1917-1919("United states consumer," n.d.). Periodic collections of prices were started, and, in 1919, the Bureau of Labor Statistics began publication of separate indexes for 32 cities ("United states consumer," n.d.). Regular publication of a national index, the U.S. city average began in 1921, and indexes were estimated back to 1913 using records of food prices ("United states consumer," n.d.). Because people's buying habits had changed substantially, a new study was made covering expenditures...
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...the end of 1996, a study of the Consumer Price Index was done under the leadership of Michael Boskin in which they declared that the CPI has been overstated and that the index should have been at a rate of 1.8% as opposed to the reported amount of 2.9%. His report also included that the CPI had been overstated similarly of the past twenty years. The finding in his report shows that the government was doing a good job at controlling inflation and that productivity was higher than previously reported. Since our government uses index to adjust stats such as GDP per capita, a reduction in CPI shows our economic performance as improved. We cannot afford to take his report into consideration as there are many flaws and deceptions in his findings. The CPI is made up of many details below are a few key points that will help that will help to reveal the flaws and deceptions regarding Boskin’s determination. Wrong Market Basket The BLS conducts a survey every ten years on consumer behavior in order to set up a weighted “market basket of goods and services” that is supposed to represent outlays of the average citizen and is adjusted for any changes they find in lifestyle. These adjustments only consider two lifestyles the CPI-W which represents living conditions for lower middle class and poor urban household getting their income from wages and salaries as clerical non-executive workers, and the CPI-U which represents non-wealthy urban consumers inclusive of wage earners, salaried...
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...Consumer Price Index (CPI) ? Economists use CPI as a simple tool to measure inflation and price level. CPI measures cost, for any period, involving particular services and goods for a given year relative to what they cost initially in a fixed year, known as the base year. CPI, also referred to as the ‘cost of living’ is simple to explain. Suppose Tom, who lives alone, purchases a total of 50 hot dogs and 25 tubs of sauce monthly and needs nothing else to survive. Realistically this couldn’t happen but assume for simplicity, this is the case. The base year, chosen by the government, is 2000. During this year hot dogs cost $10 and tubs of sauce cost $5. Total expenditure for the month is $625. However, in 2002 prices increase and Tom now pays $12 for hot dogs and $7 for tubs of sauce. Total expenditure in a month has risen from $625 to $775 over the period 2000-2002. The formula to calculate CPI is given by: CPI = Cost of base-year goods and services in current year Cost of base-year goods and services in base year Therefore, the CPI in 2002 will be: CPI = $775 = 1.24 $625 This shows that the ‘cost-of-living’ for Tom has risen 24%, $625 to $775 over the years 2000 to 2002. Underlying vs. Headline inflation The Reserve Bank (RB) uses underlying measures of inflation because it tends to disregard changes of price in areas such as household goods, government charges, tax and interest. ‘While their inclusion is appropriate when the CPI is viewed...
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... What is the consumer price index for 2013? Explain. ------- ------- ----------------- ----------------- ---------- ---------- Spending in base year = 10 +72 +12 Spending in base year = $94 Spending in current year = 12+84+18 Spending in current year = $114 The CPI for Year 2013 is $121.3. To find CPI you must divide the current year by the base year and multiply by 100. 114/94 is 1.2127 and multiplying that by 100 gives you the CPI of 121.3. 2. Conduct an Internet search on the "national debt to the penny." How much is the current national debt? Once you find out the size of the debt, determine if the federal government is helped or hurt by unanticipated inflation if the interest rate on the debt and its payments are fixed. Explain. The current national debt is $17,747,150,188,000. The government is helped by inflation with regard to the debt, since it will get increased tax revenues as a result of inflation, but still owe only the original amount of interest and principal on the bonds it sold to finance the debt. Also, inflation will cause people to demand higher interest on bonds and the government will have to pay more for borrowing money. 3. Maddie's nominal income was $33,000 in 2012. In 2013, because of her excellent work ethic, she received a raise that increased her nominal income to $35,000. Maddie knew a lot about inflation so she decided to see how much of a raise she really received. After researching the consumer price index at the Bureau...
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...Company to lease a turbine. The lease is effective on January 1, 2011. The purpose of this report is to provide Big Bear with insight in evaluating whether the costs or potential costs associated with the lease should be included in the “minimum lease payments” according to US GAAP Accounting Standards Codification. When assessing the minimum lease payments, we reviewed the legal costs incurred to Big Bear’s external legal counsel (Stripe, Berry, Mills, and Buck LLP) pertaining to the negotiation of the lease terms. We also examined the provision requiring Big Bear to pay a penalty if it were to default under its current credit arrangement with its bank, as well as the effect on monthly payments that are subject to an increase in the consumer price index calculation. Provision One First we will review the costs incurred during the negotiating of the lease terms. Big Bear is required to pay its external legal counsel $500,000 in legal costs. This amount should not be included in its minimum monthly payments because per accounting guidance ASC 840-10-25-5: For a lessee, minimum lease payments comprise the payments that the lessee is obligated to make or can be required to make in connection with the leased property, excluding both of the following: a) Contingent rentals b) Any guarantee by the lessee of the lessor's debt and the lessee's obligation to pay (apart from the rental payments) executory costs such as insurance, maintenance, and taxes in connection with the...
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...Macroeconomic Indicators & objectives Deals with the performance of the economy as a whole. Four main indicators to measure this are: 1. Economic growth 2. Unemployment 3. Inflation 4. The current account of the balance of payments In relation to each indicator, they have objectives which are strong and sustainable growth, low employment, low and stable inflation and an acceptable balance of payments position. Measuring economic growth • Main measure is GDP ( Gross Domestic Product) • GDP is the value of output produced within the domestic boundaries of the UK over a period of time, usually a year. • An alternative measure of national income is GNP (Gross National Product)/ GNI (Gross National Income). • It measures the value of income from UK owned factors of production over a given period of time, usually a year. • GNI = GDP + Net property income from abroad (NPIA) • NPIA is the net balance of interest, profits and dividends (IPD) coming into the UK from UK assets owned overseas matched against the outflow of profits and other incomes from foreign owned assets located in the UK. • National Output = National Income = National Expenditure • This is basically the circular flow of income Measuring unemployment • The unemployed are those of a working age who are actively seeking...
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...structuring the lease transaction. Therefore, it should be included in minimum lease payment. Provision 2 If any of those conditions do not exist, then the maximum amount that the lessee could be required to pay under the default covenant shall be included in minimum lease payments for purposes of applying paragraph 840-10-25-1 (d).”1 Thurber will be in default under the credit arrangement if there is a “material adverse change” in its financial condition. Since financial condition is a customary provision in leasing arrangements, Thurber has met this condition and the penalty payment will not be included in the minimum lease payment. Provision 3 According to ASC 840-10-25-4, “lease payments that depend on an existing index or rate, such as the consumer price index or the prime interest rate, shall be included in minimum lease...
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...method. 1. CPP method adopts the same unit of measurement by taking into account the price changes. 2. Under CPP method, historical accounts continue to be maintained. CPP statements are prepared on supplementary basis. 3. CPP method facilitates the calculation of gain or loss in purchasing power due to the holding of monetary items. 4. CPP method uses common purchasing power as measuring unit. So, the comparative study is easy. 5. CPP method provides reliable financial information for taking management decision to formulate plans and policies. 6. CPP method ensures keeping intact the purchasing power of capital contributed by shareholders. So, this method is of great importance from the point of view of the shareholders. Disadvantages Of Current Purchasing Power (CPP) Method Following are the some major points for the critism of CPP method: 1. CPP method considers only the changes in general purchasing power. It does not consider the changes in the value of individual items. 2. CPP method is based on statistical index number which can not be used in an individual firm. 3. It is very difficult to choose a suitable price index. 4. CPP method fails to remove all the defects of historical cost accounting system. 5. The use of general price index for CPP method is questioned. While general price index deals with consumer goods, business is interested in the price movement of producer goods. Accounting-measurement showing the effect of inflation...
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...Kaplan University Graduate School of Business and Management GB540-03 Economics for Global Decision Makers – Unit5 Assignment Dr. Barbara-Leigh Tonelli. By Ajeeth Pingle 4/05/2011 Wal-Mart Economic Indicators Wal-Mart has become the world's number one retailer. Diversification into grocery (Wal-Mart Supercenters and Neighborhood Markets), international operations and membership warehouse clubs (SAM'S Clubs), has created greater opportunities for growth. But unlike some corporations, whose financial growth does not translate into more jobs, Wal-Mart's phenomenal growth has been an engine for making jobs. Wal-Mart has a history of having become a strong investment for Shareholders. The Company made its initial public offering in October of 1970, when selling 200,000 shares for $16.50 per share. If an investor had purchased 100 shares in the initial offering, those shares would have been worth more than $13 million as of January 31, 2011 and the number of shares owned by that investor would have grown to 204,800 thanks to 11 stock splits. From the beginning, Wal-Mart has created tremendous Shareholder value. The Company raised $3.3 million in its initial public-equity offering. As of April 2, 2010, the Company had grown to a market capitalization of nearly $211 billion. According to About.com (2010), economic indicators are economic statistics...
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...1.(a) A bond is a tradable loan. Issuer promises to repay to the loan at a future date (on maturity), and pay interest at a defined rate (usually fixed). Issuer might be the British government or company. In this, the coupon is 8%, redemption date is 2015. Mr. Alistair will receive every six months 4% form government. The government will at the redemption date. (b) These Gilts provide interest payments (coupon) and capital repayment that are linked to CPI (the Consumer Price Index, which measures the rate inflation). Until recently the index used was the Retail Price Index (RPI). Inflation erodes the return to the investor by reducing the real return an investor earns. By providing coupons that are increased in line with inflation, these Gilts provide additional protection for the investor. 2.£20,000 @ £104/£100 = £20,800 Interest per half year = £20,000 @ 8%/2 = £800 Days in period 22 Feb to 5 May (one extra day for settlement) 6+31+30+5 = 72 Half year = 22 Feb to 22 Aug = 6+31+30+31+30+31+22 = 181 Interest split = £800 x 72/181 = £318.23 Total paid = £20,800 + £318.23 = £21,118.23 3 (a) Ordinary shares: (i) the ordinary shareholders can sell their shares, or transfer without restriction. (ii) ordinary shareholders can share in the profit of the company--Dividends payable if company profits permit (iii) shareholders can be invited to attend all meeting (iv) ordinary shares have no fixed value — market value instead (v) shareholders have Full voting...
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...Assignment: IST 309/611/712 Second Semester: Estate Duty and Estate planning Due date: 26 September 2012 (negotiable) Instructions: Assignments can be submitted as an individual or a group. Group assignments are limited to a maximum of 6(six) and numbers greater than 6 must be approved before submission. Case study: Romeo is married out of community of property to Juliette but subject to the accrual. They have only one child, Moses (14). At the time of their marriage 18 years ago Romeo’s assets amounted to R450 000 while Juliette’s amounted to R200 000 and these figures were stated in their ante-nuptial contract. The weighted average consumer price index (CPI) at the commencement of the marriage was 71.62. Romeo’s financial affairs: Assets/property and liabilities Base cost Market value Liability Residential property R2 500 000 R5 200 000 R1 900 000 Share portfolio R2 300 000 R5 600 000 Bank investments R 400 000 Motor vehicle R 400 000 R 300 000 R 250 000 Income tax R 84 000 Insurance portfolio: Death benefit Life cover benefit payable on death Life policy payable to the estate R2 500 000 Life policy payable to Juliette R3 100 000 Keyman policy owned by his employer R1 300 000 Retirement Annuity fund R2 200 000 In terms of Romeo’s Last Will and Testament, he leaves his residential property to his spouse and the residue of the estate to his child. Romeo’s marginal tax rate is 40% Question 1 (5 marks) Calculate the executor’s fees...
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...530 EVE Yan Li Treasury Inflation Protected Securities – TIPS Definition----A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the TreasuryDirect system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 20-year maturities. Investopedia explains 'Treasury Inflation Protected Securities - TIPS' Because a TIPS bond's semiannual inflation adjustments are considered taxable income by the IRS even though investors don’t see that money until they sell the bond or it reaches maturity, some investors prefer to get TIPS through a TIPS mutual fund or only hold them in tax-deferred retirement accounts to avoid tax complications Purchasing TIPS directly, however, allows investors to avoid the management fees associated with mutual funds. TIPS are also valuable because they are exempt from state and local income taxes. Summary of Marketable Treasury Inflation-Protected Securities The Treasury Department...
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...taking a beating in the recession, the U.S. is in the process of stabilizing this shaky economic recovery. It is indeed a rather slow process. The chart below gives a snapshot of the progress. GDP, CPI and other key economic reports Updated 9/1/2010 | This week | Month ago | Year ago | Gross Domestic Product (billions) | 14575.0 | 14597.7 | 14143.3 | Housing Starts (thousands) | 432 | 454 | 490 | Producer Price Index | 178.7 | 178.4 | 171.7 | Consumer Price Index | 217.6 | 216.9 | 214.5 | Purchasing Managers Index | 56.3 | 55.5 | 52.9 | Retail Sales | 362688 | 360156 | 342309 | Unemployment Rate | 9.6 | 9.5 | 9.7 | Statistics include: the unemployment rate, the level of monthly retail sales, price changes for businesses and consumers as measured by the Producer Price Index and Consumer Price Index, monthly housing starts, and the quarterly Gross Domestic Product, which measures the value of all goods and services produced in the U.S. in a given calendar quarter. In order to have an economic recovery unemployment has to ease. Consumer spending, which makes up 70 percent of the economy, will not increase until the unemployment has decreased. In today's challenging economy, mergers and acquisitions are becoming commonplace as a way for firms to expand geographically and obtain profitable growth. The climate is heating up. The level of M&A activity is expected to rise. Overall, I tend to believe that the U.S. recovery is possibly underway at a...
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...the economy. We want to measure how the cost of living changes over time. The main intuition here is that, over time, peoples’ incomes and the prices of goods and services increase. 30 years ago an ice cream sundae cost $1 and a typical economics professor earned $35,000. Now, a (bad) ice cream sundae costs $4.50 and a typical economics professor earns $70,000. Main Parts of the Notes: 1. How do we measure the cost of living? a. Using the GDP price deflator b. Constructing the Consumer Price Index (CPI) c. Deriving an inflation rate from the CPI 2. How do we adjust for inflation when comparing dollar values over time? Minor Point: What are the weaknesses of the CPI as a measure of the cost of living? Measuring The Cost of Living: There are two broad measures of the cost of living: the GDP price deflator and the CPI. Both measures move together, so they paint a similar picture of the cost of living. We will briefly discuss the GDP deflator first, and then move on to the more important CPI. GDP Price Deflator: Last time we saw how we can calculate both nominal and real GDP. The idea here is to construct a measure (and index to be precise) of the cost of living using this information. Recall, the only difference between nominal and real GDP is that changes in prices (the cost of living) ARE reflected in nominal GDP but are not in real GDP. Intuitively, suppose you have the following information: Year:...
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...BRIEFING NOTE Consumer price indices January 2012 Date: 14 February 2012 Coverage: United Kingdom Theme: The Economy CONTENTS SUMMARY CPI SUMMARY CPI RECORDS CPI DETAILED BRIEFING RPI SUMMARY RPI RECORDS RPI DETAILED BRIEFING RECONCILIATION OF CPI AND RPI RPI MISCELLANEOUS DATA OUTLOOK 2 3 6 7 28 29 30 38 39 40 This note is produced as background briefing for the Consumer Price Indices Statistical Bulletin. Users who require authoritative figures should use the Consumer Price Indices Statistical Bulletin or CPI and RPI Detailed Reference Tables. 1 Statistical Bulletin: Briefing Note, Consumer Price Indices January 2012: Page 2 SUMMARY Consumer Prices Index (CPI) The Government's inflation target for the United Kingdom is defined in terms of the CPI measure of inflation. From April 2011, the CPI is also being used for the indexation of benefits, tax credits and public service pensions. The CPI is an internationally comparable measure of inflation and is used to compare inflation rates across the European Union. • • • • • • • • The all items CPI is 121.1, down from 121.7 in December. The all items CPI annual rate is 3.6%, down from 4.2% in December. The annual rate for CPI excluding indirect taxes, CPIY, is 3.6%, up from 2.8% last month. The annual rate for CPI at constant tax rates, CPI-CT, is 3.4%, up from 2.6% last month. The CPI all goods index is 117.1, down from 117.8 in December. The CPI all goods index annual rate is 3.5%, down from 4.2% last month...
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