Economic Tutor

Assignment 2: LASA 1: Inflation and Government Economic Policies

Inflation is a measure of how prices have changed over time.  If prices are changing due to inflation, each dollar spent will buy less.
In order to answer the questions below, go to the following website:  http://www.bls.gov/cpi/

Questions:

1.  What is inflation? What are the causes of inflation?  Is inflation desirable and what can be done to control inflation in a market economy?
2. What is the Consumer Price Index (CPI)?  How has the CPI behaved since the year 2000?  What have been the causes of these changes? In your response, include a graph of the CPI for this period and cite your source.
3. What is the Producer Price Index (PPI)?  How has the PPI behaved since the year 2000?  What have been the causes of these changes? In your response, include a graph of the PPI for this period and cite your source.
4. What is the Consumer Expenditure Survey (CE)?  How has the Survey behaved since the year 2000?  What have been the causes of these changes? In your response, include a graph of the CE for this period and cite your source.
5. What do the measures above tell us about consumer behavior?  Have incomes changed enough to offset the inflation since 2000?  What can we predict about future inflation?
6. What are the implications of these measures for government economic policies?