CPI is an indicator of change in price of goods and services that households consume. An increase in CPI means the increase in the basket price which becomes the cause of Price inflation and in decrease in the price in CPI leads to price deflation. An increase in CPI is deemed as a good indicator of economic growth as it shows that consumers are able to pay higher price than before. It also helps of improving a good standard of living. But an increase in CPI has some adverse effect on economic as well as social environment of a country. This paper aims studying what are the adverse effects of increase in CPI and how to cope with them to make a better economic and social world.
Literature Review
What is Consumer Price Index?
The Consumer Price
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The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The CPIs are based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Consumer price indices (CPIs) are index numbers that measure changes in the prices of goods and services purchased or otherwise acquired by households, which households use directly, or indirectly, to satisfy their own needs and wants. A price index can be termed as a measure of the proportionate, or percentage, changes in a set of prices over time. The CPI reflects spending patterns. A consumer price index (CPI) measures changes in the prices of goods and services that households consume. It is said that one of the main reasons for compiling a CPI was to compensate wage-earners for inflation by the proportionate adjustment in their wage …show more content…
Increase in price of consumer goods is creating a gap between the two classes. In long run this may lead to a big problem for government as inequality between the two classes. At that time the Government will have to levy more taxes on the goods and services so that it can cope up with such sort of inequality. But it is not an easy task to levy more taxes on incomes. This type of strategies can create a political and economic uncertainty. Political uncertainty can be due to rude attitude of taxpayers against the Govt. who levy more taxes on their incomes and if we see the concept of more tax with economic point of view, more taxes leads to less production and the unemployment in that economy. It reduces the export of goods and services and again Government may be in a problem of increase balance of payment deficit. An increase in tax tends to cut in production quantity and leave an adverse effect on producers’ as well as consumers’ pocket. If it happens, he starts to reduce his expenditure which again leads to reduction in production of goods and services due to this unemployment takes place in the economy and a cause and effect cycle generates between increase in CPI and decrease in
...formula is based on an arithmetic mean of the price levels in the two selected cities. In order to calculate the index for the two cities examined, the average price of each item must first be calculated. The prices are then compared in each town to the average prices. There is still another element to the calculation of the CPI that we haven’t discussed just yet, and that is not every product in the survey is as important as the other. For example, the cost of a vehicle is more important in determining the index than the price of a loaf of bread. The weights have been chosen on the basis of research that indicates while there are certainly differences amongst the various national spending patterns; there are some average figures that most companies accept. The chart below indicates the sum of individual weights allocated to each item composing the index categories.
Inflation means the increase in household spending necessary to maintain a constant standard of living. Also, Inflation in the economies of the currencies that are traded is an important factor to consider because it affects the relative value of these currencies internationally and because it can decide future policy adjustments by governments and central banks. Besides, Inflation is usually measured by governments that use groups of price levels for goods in different sectors known as price indices. These include measures such as a producer price index (PPI), which measures wholesale inflation, and a consumer price index (CPI), which measures inflation for consumers. Governments and central banks often use these indices to help decide their
Webster's dictionary defines consumerism as "the economic theory that a progressively greater consumption of goods is beneficial." today we are surrounded by a culture of things and possessions:a materialistic world.consumption of materialistic goods has encroached upon every sphere of our lives and we don't even realise it.at first products had a value of necessity in our lives.but now they are sign of choice, social status and identification.the more we advance technologically and socialy the more we need products to keep up with the times.but do people really need all the things they buy?consumerism today is all about people feeling the need to buy more and more material goods to attain some sort of satisfaction.
Inflation is one of the main reasons for the minimum wage being at a low level. In the United States workers are earning less than they did in the seventies. Last year in the United States approximately three million people of the working class dropped below the national poverty level. Minimum wage laws are established by the federal and state governments to help balance out the amounts of money people earn. It prevents one person or persons from making all the money, and some making very little. The term income distribution is where everyone would earn the same amount of money. This is not something that could really happen because everyone has different levels of education and different trades. Minimum wage is a way to try to keep the income distribution fairly equal. The views on raising the minimum wage are very different from person to person.
After the onset of the global economic recession in 2008, inflationary pressures were relieved. Slower economic growth and incomes growth lessened the ability of businesses to increase consumer prices, while also decreasing demand for labour and materials trimmed down inflationary pressures on business costs. By 2009, both headline and underlying inflation fell to the lower end of the Reserve Bank’s inflation target band between 2-3% where the Treasury forecasted inflation (CPI) to be 1.5% in 2008-09.
The effects from consumption taxes may seem welcoming for the bulk of taxpayers, but it too seems threatening for the economy. This type of tax system brings more job opportunity and enables people to save more money, which both helps sustain a stable growth for the economy. In order to stable the economy, the government collects their revenue directly from consumer goods at the point of sales through companies or retailers, which enables business to keep booming and make profit . Clearly, this seems to maintain stable cycle and yet it also generates problems within the consumption tax system. The system could also jeopardize the economy through high sales rate, creating a higher unemployment rate, which causes an inflation and affecting certain class levels than others. If the government was to replace the current income tax system with consumption tax now, this would threaten their funds towards public services. More likely, businesses would take advantage of the taxes and thus decrease consumer goods and services. Overall, consumption tax does not seem any fairer than the income tax
In this essay I will be explaining how advertisers find different ways to connect to the consumers and will show examples of how these advertisements influence the consumer in buying that product. Before this I need to understand the consumer behavior and on the following I need to understand Maslow’s Hierarchy of Needs.
Consumer price index or inflation CPI is to review the changes of cost of a goods and services yearly based on the demand on average consumer (Venkadasalam, 2015). In other words, CPI weights the goods and services of the changes in the price that households utilize. (Consumer price index manual, 2004) Price index will display the movement in average when the price of goods and services does not change at all in the same rate
Lower taxes can be used to stimulate demand for goods and services by increasing disposable income thereby bringing about changes that can increase income, output and employment. In a micro economic context, taxes can be used to regulate consumption of certain goods in the economy. If government wishes to discourage the consumption of say cigarettes, it can raise the tax on cigarette and vice versa. In addition, the government can encourage the production of certain goods in the economy by lowering taxes on them, while it may raise taxes if she wants to discourage their production. Arguments have also been made to justify the imposition of taxes on income distribution grounds. By levying in a progressive manner, the gap between the rich and the poor is bridged
Second, inflation prices are going up, because of the gas prices high it effected everything a round from goods and services. Goods and services depend on gas for transportation and moving the goods from place to another. Services are going up due to higher cost of the gas. People are cutting back in the necessity like food, health insurance, and shopping. Many people have steady income and cannot effort much higher cost of anything.
Price is a factor that is playing neither an important role in affecting the distribution of newly product nor services in the market. Hence, setting a price for a new product in the market is difficult (Foxall, 1984).
The wholesale price index is an index that measures and tracks the changes in the price of goods in the stages before the retail level. WPI shows the average
Effects of inflation are market inefficiencies, and create complicate for firms to plan long-term finance. Inflation can serve as a burden on productivity as organizations are compelled to change resources away from products and services for targets on profit and losses from inflation of currency. Concern about the power of purchasing in future of money depresses investment and saving and inflation can charge hidden tax raises. Higher inflation in one economy than another will lead to the exports of first economy to become more costly and impact the trade balance in trading
In order for any country to survive in comparison to another developed country they must be able to grow and sustain a healthy and flourishing economy. This paper is designed to give a detailed insight of economic growth and the sectors that influence economic growth. Economic growth in a country is essential to the reduction of poverty, without such reduction; poverty would continue to increase therefore economic growth is inevitable. Through economic growth, it is also an aid in the reduction of the unemployment rate and it also helps to reduce the budget deficit of the government. Economic growth can also encourage better living standards for all it is citizens because with economic growth there are improvements in the public sectors, educational and healthcare facilities. Through economic growth social spending can also be increased without an increase of taxes.
Tax policy is a major issue in today’s society that affects the changes of economic growth that is being portray. Tax policy is the choice by a government as to what taxes to excise, the amount, and on whom. It has a macroeconomic and microeconomic aspects of tax policy, the macroeconomic has an overall concern of taxes to collect, which affects the level of economic activity; this is called the fiscal policy. The microeconomic concerns the issues of fairness and a preferences of the consumer from the amounts of various types of economic activity. Due to tax policy is a big issue that has been affecting the economy in several of ways.