Consumer Price Index measures the weighted average of prices ofconsumer goods and services purchased in an economy. Table 1.1gives data on Consumer Price index of 7 countries during period of1980-2005, with 100 as the base of index during 1982-84.
a.
Inflation rate is measure of rate of increase in price level inan economy over a period of time.
To find inflation rate of current year, subtract CPI of previousyear from CPI of current year, divide the difference by CPI ofprevious year. And multiply the result by 100.
CPI of country U in 1980 is 82.4 and CPI in 1981 is 90.0.Inflation rate of country U in 1981 is given by,
Inflation rate of country U in 1981 is 10.32%.
Similarly, CPI of country G in 1994 is 131.1 and CPI in 1995 is133.3. Inflation rate of country G in 1995 is given by,
Inflation rate of country G in 1995 is 1.68%.
Similarly, inflation rate of the 7 countries for each year iscalculated in table 1.2
b.
Plot the inflation rate of the 7 countries for each year, usingTable1.2. The vertical axis shows inflation rate and horizontalaxis shows time.
c.
The graph 1.1, which shows inflation rate of the 7 countries,can be divided into 4 periods. Separate conclusions can be drawnfor each period.
From 1981 to 1986, the inflation rate of countries is generallydeclining. From 1987 to 1990, inflation rate of countries isgenerally rising. From 1991 to 1994, inflation rate of countries isgenerally declining. And from 1995 to 2005, inflation rate ofcountries is generally constant.
d.
Standard deviation can be used to measure variability ininflation rate of each country over time. It measures thevariability of data of a group from mean value of the group.
Formula of standard deviation σ is,
Where n is number of observations
X bar is mean of data set
Calculate standard deviation for inflation rate of country U,using above formula.
Standard deviation σ is,
Standard deviation of country U is 1.77
Calculate standard deviation for inflation rate of countryC.
Standard deviation σ is,
Standard deviation of country C is 2.79
Calculate standard deviation for inflation rate of countryJ.
Standard deviation σ is,
Standard deviation of country J is 1.45
Calculate standard deviation for inflation rate of countryF.
Standard deviation σ is,
Standard deviation of country F is 3.34
Calculate standard deviation for inflation rate of countryG.
Standard deviation σ is,
Standard deviation of country G is 1.57
Calculate standard deviation for inflation rate of countryI.
Standard deviation σ is,
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Standard deviation of country I is 4.48
Calculate standard deviation for inflation rate of countryB.
Standard deviation σ is,
Standard deviation of country B is 2.60
Standard deviation for country I is highest. Therefore,inflation rate of country I is most variable.