The course under consideration is rather important as it helped to understand a lot of different market and economical changes in the country. The knowledge possessed may help in real life while providing big purchases and just calculating the domestic budget per period (week, month, or year). The main advantage of the GDP is that it allows providing a quick comparison of standards of life in countries. The main disadvantage is that GDP is not really the standard of life measuring, but the measuring of the economic activities.
GDP and the economical well-being of the country are two notions that are connected. Moreover, GPD may measure the level of economical well-being by means of GDP statistics, which shows the relative neglect of dimensions of well-being. Considering the question of the relationship between the level of GDP and economic well-being, it is impossible to miss the factors which make GDP an inadequate measure of economic well-being, even though these notions are closely interconnected and influence each other. The problem is that GDP cannot directly measure economic well-being because of several facts. (1) GDP ignores household production and leisure time, (2) positional competition is ignored by GDP, (3) the pollution of the environment and long commuting is also avoided, (4) the exhaustible resources are not debited, (5) the life and work quality is missed in GDP, and (6) meta-externalities are ignored. So, these are the factors that are not taken into account while GDP evaluation, but which influence the economical well-being (Cohn, 2006).
Cohn (2006) also states that the “excellent proxy for national economic well-being and maximizing GDP is an excellent strategy for maximizing national well-being” (p. 76). So, the versa effect is also possible, that is the increase of the economical well-being increases the GDP. So, the factors which increase the well-being may influence the GDP as wealth and happy people influence the country’s economics for the better. The example of pollution is rather informative, as polluted air or water never increases the GDP, even though there is no direct interconnection, these notions still have some far and indirect influence on each other.
Before providing the information about the strengths and weaknesses of the CPI, it is significant to mention the steps of CPI calculation: fix the basket, find the prices, compute the basket’s cost, choose a base year and compute the index and compute the inflation rate (Mankiw, 2004).
What are the characteristics of the items listed as strengths?
The characteristics, which are listed as the strength, are the statistical issues. It is proved that statistics is rather important in any sphere of economical and social life. The main feature of the importance of statistics is that it helps to analyze the previous periods (the consumer price index in our case) and to make the possible forecast for the next period (Bureau of Labor Statistics uses one month as the reporting period).
What are the characteristics of the items listed as weaknesses?
The characteristics which are offered in the weakness list are mostly the economical and market changes. In another word, the consumer price index is a stable number of goods that are impossible to change when the situation on the market (either with the price or with the quality of the product). When the price index is ready it stays reliable for a month (report period), and the changes which occur during this month are out of its consideration.
If the CPI is imperfect, why do we use it?
The Consumer Price index is imperfect, but it is still used in the economical world. The reason for the usage of such an imperfect system is that there is no other index that could calculate and measure the overall costs of people’s life and the rate of inflation. Moreover, the consumer price index is sometimes used as the follower of the government actions, which were provided with the aim to reduce it. The consumer price index helps to predict the changes in the economical situation on the market and to evaluate the change of customers’ goods basket (Healy, 2009).
Reference List
Afriat, S. N. (2004). The Price Index and Its Extension: A Chapter in Economic Measurement. New York: Routledge.
Bureau of Labor Statistics. (2009). Consumer Price Index.
Healy, J. (2009). Consumer Price Index. The New York Times.
Mankiw, N. G. (2004). Principles of economics (3rd ed.). Chicago, IL: Thomson South-Western.
Cohn, S. M. (2006). Reintroducing macroeconomics: a critical approach. M.E. Sharpe, New York.