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ECS2603 Ch 5 and 6 flashcards
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6. Define a price index number.
6. Define a price index number.
It is the cost of basket in current period over cost of basket in base period or ratio between value of variable at a given time period and its value at a base time.
7. Describe the five basic steps in constructing a price index.
7. Describe the five basic steps in constructing a price index.
•choice of base year
•choice of items to be included in the basket
•collection of data
•calculation of the index numbers
•assignment of weights to different items.
13. What are the differences between PPI and CPI.
13. What are the differences between PPI and CPI.
PPI measures the cost of production and CPI measures the cost of living.VAT is included in CPI but excluded from PPI. PPP pertains to goods only and CPI pertains to goods and services.Food stuff have a larger weight in CPI than in PPI.Prices of imported goods are more explicit bearing on PPI than CPI.
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