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The chart below shows UK inflation as measured by the Consumer Prices Index (CPI), 2011 to 2015 - Edexcel - A-Level Economics A - Question 3 - 2017 - Paper 2
Question 3
The chart below shows UK inflation as measured by the Consumer Prices Index (CPI), 2011 to 2015. Annual percentage change in prices Which one of the following stat... show full transcript
Worked Solution & Example Answer:The chart below shows UK inflation as measured by the Consumer Prices Index (CPI), 2011 to 2015 - Edexcel - A-Level Economics A - Question 3 - 2017 - Paper 2
Step 1
Which one of the following statements is correct about the UK's inflation record between September 2011 and January 2013?
Answer
Based on the chart, the UK experienced B disinflation. This can be inferred from the declining trend of the Consumer Prices Index (CPI) during this period, where the rate of inflation was decreasing over time, indicating that prices were still rising but at a slower rate.
Step 2
With reference to the data provided, explain the process of calculating the rate of inflation in the UK using the Consumer Prices Index. Refer to the concept of weights in your answer.
Answer
To calculate the rate of inflation using the Consumer Prices Index (CPI), the following steps are involved:
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Identify the Basket of Goods: A representative basket of goods and services is created, reflecting typical consumer spending. This basket includes various categories such as food, housing, and transportation.
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Price Survey: Regular surveys are conducted to record the prices of items in the basket. This involves collecting price data from various stores and sources to ensure accuracy.
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Weighting Each Item: Each item in the basket is assigned a weight according to the proportion of spending on that item by households. For example, if households spend more on food than on entertainment, food will have a higher weight.
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Calculating the Index: The CPI is calculated by comparing the current price of the basket to the price of the same basket in a base year, allowing for the evaluation of inflationary movements.
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Referencing the Chart: In the context of the chart from January 2015, it shows that food and fuel prices were influencing inflation rates. The CPI in January 2015 was recorded at 0%, indicating no change in overall price levels, partly due to the drag from food and fuel costs.