# The consumer price index

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##### Intros

###### Lessons

__Consumer Price Index Definition__- Average of the prices of a fixed basket of goods
- Properties of CPI
- Reference base period
- Percent increase from two years

__Calculating CPI__- Cost of basket at current period
- Cost of basket at base period
- Multiply by 100
- An Example

__Measuring Inflation Rate with CPI__- CPI of this year subtracted by CPI of last year
- Divide by CPI of last year
- Multiply by 100

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##### Examples

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###### Topic Notes

__The Consumer Price Index Definition__**Consumer Price Index (CPI):**measures changes in the price level of a fixed basket of consumer goods and services.

**Properties of CPI:**

- Is equal to 100 at the
*reference base period*. - If $CPI$ > 100, then prices are higher than the ones in the base year.
- If $CPI$ < 100, then prices are lower than the ones in the base year.
- $CPI$ - 100 gives the percent increase/decrease in the average of the prices of the basket of consumer goods and services.

__Calculating the $CPI$__To calculate $CPI$, we use the following formula

To calculate the cost of a basket of two goods, we use the following formula

Where:

$p_{x}$ = price of good $x$

$q_{x}$ = quantity of good $x$

$p_{y}$ = quantity of good $y$

$q_{x}$ = quantity of good $y$

__Measuring Inflation Rate with CPI__To calculate the inflation rate, we use the following formula:

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