Characteristics of CPI?
Strenghts:
•The CPI provides a measure for inflation
•The CPI is stable as it is made of companies with a long good standing histories
•The CPI is balanced. It is made of companies from different industries
Weaknesses:
•Prices change from year to year but not all prices are changing at the same time (substitution bias)
•Variety causes change which is not computed into the CPI of fixed goods and services (Introduction of new goods)
•The quality of goods my deteriorate from one year to another causing the value of the dollar to fall while the price of the goods stay the same (unmeasured quality change)
Can someone help me in figuring out what is meant by "find the characteristics of the items listed as strengths and weaknesses?"
Answer:
The 2nd and 3rd items in this list of strengths aren't even correct as far as I know. The CPI is made up of a basket of goods. Not a basket of companies. The goods are staples and cover a variety of industries but it doesn't have anything to do with company specific items.
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