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The Principles of The Cpi Calculation in Inflation Rate in Economics

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The CPI calculation in the inflation rate is considered as a combination of many goods, which are accumulated within the year. The same products are used in the following year and the next, which means that in the calculation of the inflation rates. The amount of goods and services used in the calculation remains the same with a slight change. On the other hand, the GDP deflator is calculated as a factor of flexible goods and services in the country. The changes in every year were due to the different factors that affect the economy is considered in the calculation of the inflation. Therefore, as the CPI follows the Laspeyres index, the GDP deflator follows the Paasche index.

On the other hand, the GDP deflator is a reflection of every good and service within the country with a general perspective of the market trends. The representative inflation rate is conclusive with all the factors considered. At the same time, the CPI uses a collective number of goods as the representative of what the market offers. The small amount purchased by an individual is the representative of the market. Therefore, it would be ideal to use the GDP deflator in the calculation of inflation owing to the convincing reflection of the system to the market trends. The GDP deflator produces results that are a representative of the whole market equation, which is the best system to use in the prediction of the market trend.

The increase in the Gini coefficient between the year 2001 and 2006 indicates an increase in income inequality in Hong Kong. The Gini coefficient represents a complete equality at zero and inequality as the value moves towards one. When a country has a Gini coefficient as 1.000, then the distribution of the economy revolves around a single person.

Wages are calculated as a factor of the market economy, the general output of the company or organization an individual works in, and the type of work an individual is tasked. However, the market economy is the primary determinant, which means that when the economy shifts, a change is also expected in the functionality of a company and the market prices. As a result, the wages and salaries change to either the positive or a negative. However, if it remains the same it does not mean that the income is the same as the previous year. Rather, it reflects a change in the income, which is directly affected by the economy. The Nominal GDP for the current and the base year.

Nominal GDP for each year = Price x Quantity

When the government introduces the investment tax credit, a number of systems in the state will experience an increased taxation inflow. Therefore, the public, who are a significant contributor to the tax process, are forced to pay higher returns. According to the loanable funds model, a high return is a result of the slope of the supply curve(Mankiw, 2014). Therefore, as the tax rates are kept constant, the government fails to save and with poor investments since there is no generation of income. On the other hand, these implications come with increased interest rates for the government.

When the consumers save, it implies that there is a little supply rate in the markets. As a result, the government operates with small loans given to the public. Similarly, the government loses the quantity loaned out, and the interest rate for the government reduces. The investment, however, of the government is small with the reduced number of loans offered and the interest accrued.

The discovery of natural energy increases the number of citizens who invest in the mining and the subsequent processes. Similarly, the government realizes an increase in savings and the investments, which are done mostly by the citizens. On the other hand, interest rates of the government through the loans increase.

The value added of a firm increases its publicity among the customers and portends the success of the product in its release to the market. When the customers are knowledgeable of the product, they intend to purchase, their anticipation increases the likelihood of purchasing the product. However, the positive results only are realized if the product provides the customers with the need not addressed in the market.

An economic system gives allowance for changes in the workplace about the labor force, the efficiency of an employee, the wages, and the skills of the employee. Therefore, an employee can change his or her position from time to time and, at the same time, another employee may lose his or her job to another employee.

Therefore, frictional unemployment continues to exist. On the other hand, demand in the market directly affects the changes in the workplace, which translates to the increased rate of unemployment or hiring. The market demand leads to the development of the new system in an organization, which promotes structural unemployment.

In the management of frictional and structural unemployment, the government has the mandate of providing information to the employees on the job opportunities and skills that are in demand. Knowledge on what is lacking in the market helps reduce the number of employees fired since they do not meet the requirements of the job. On the other hand, the administrators should increase the manual skills job opportunities and invest more in the agricultural sector, which is the leading employment sector. Through the increased manual labor for the employee, fewer instances are realized when employees lose their job.

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The Principles of the CPI Calculation in Inflation Rate in Economics. (2018, Jun 17). GradesFixer. Retrieved March 29, 2023, from
“The Principles of the CPI Calculation in Inflation Rate in Economics.” GradesFixer, 17 Jun. 2018,
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