Consumer Price Index Worksheet (8 Marks) 1. Use the following table to answer the questions below. Consumer Price Index and price index of major component items (1942-109) December Relative December November December November to = 2004 to importance! 2005 2005 2004 December 2009 December 2005 price index price index price index % change 100106 128.1 120 2 1254 0.1 23 Food 128 4 127 2 125.7 1201 122 3 28 Household 10.58 1162 116.2 115.3 Clothing and 5 37 1004 101.8 100 8 Transportation 19.79 157 1 152 2 145 8 43 Health And 1 52 121.5 121.7 719.1 -02 20 person care education And 11 96 12616 127.1 1209 02 Alcoholic 413 147 5 148 3 144 5 05 21 tobacco productsA. List the 3 most important items in the basket of goods and services for calculating the CPI? Why do you think they are the most important items? (4 marks) B. Which is the least important item in the basket of goods and services for calculating the CPI? Why do you think it is the least important item? (1 mark) C. If the price of recreation, education and reading is increased by 15%, which Income group of people will be affected more, the low-income group or the higher middle income group? Explain your answer. (1 mark) D. If the price of grocery food is increased by 15%, which income group of people will be affected more, the low-income group or the higher middle income group? Explain your answer. (1 mark) 2. Explain why removing inflationary items such as new car purchases and house purchases severely limit the validity of the CPI. (1 marks)