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Suppose the Typical Basket for the Calculation of the CPI

question 178

Essay

Suppose the typical basket for the calculation of the CPI includes one computer. Since computers have gotten better over time as a result of technological change, what problem does this create for calculating the CPI?


Definitions:

Interest-Rate Sensitivity

The degree to which the price of an investment, often a bond, responds to changes in interest rates.

Bond Prices

The market value of bonds, which inversely fluctuates with interest rates: when rates go up, bond prices fall, and vice versa.

Coupon Rate

The yearly interest rate yielded by a bond, shown as a percent of its nominal value.

Price Sensitive

Characteristic of information or news that could influence the price of securities if it were made public.

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