Review the information available on the following websites. You will use that information to answer the questions below.
What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation? https://www.federalreserve.gov/faqs/economy_14419.htm
Why does the Federal Reserve aim for 2 percent inflation over time? https://www.federalreserve.gov/faqs/economy_14400.htm
Inflation and the Federal Reserve: The Consequences of Political Money Supply: https://www.cato.org/publications/policy-analysis/inflation-federal-reserve-consequences-political-money-supply
The Fed Explains Inflation: https://www.frbatlanta.org/news/multimedia/12fedExplained_inflation.cfm
The Inflation Project: https://www.frbatlanta.org/research/inflationproject/tutorial.cfm
After watching the animations and reviewing the information on the preceding websites, respond to the following:
CPI: Inflation Picks Up
According to the BLS, the CPI rose 3.8% in August of this year compared to a year earlier. Food prices rose 4.6% and clothing prices were up 4.2%, while new car prices rose 3.8%, and medical care was up 3.2%.
What percentage change in the CPI up until August is accounted for by the changes in the prices of food, clothing, and medical care?
Given the changes in food, clothing, and medical care, by what percentage did the prices of the other items in the CPI basket change?
Why did the prices of the other items change?
What is the probable impact of the change of other items in the CPI basket?