Note: Although you will be studying the concept of CPI in more detail in your future ECO/561 class, for the purpose of this case, you need to use the concepts of percentages, percentage increase/decrease, and creating and interpreting line charts to compute the inflation rate in the US economy and determine which time period experienced the highest inflation rate.
Follow the steps below to complete this signature assignment:
- Search for the Federal Reserve Bank of St. Louis (FRED).
- On the home page of the website, you will see a search box.
- Type in CPI- AUCSL in the search box and press the return key.
- The first result of the search will be “Consumer Price Index for All Urban Consumers: All Items.” Click on this result link.
- Click on the Download link and download the data in ExcelÂ®.
- On the ExcelÂ® file, the second column gives you the CPI values for each period starting from 1947.
- Go to the last row and notice the last date and the CPI value. Go back 6 years from this last date. For example, if the last date is 2016-11-01, then the date 6 years ago would be 2010-11-01.
- Copy and paste this six years data into a separate ExcelÂ® tab.
- Using ExcelÂ®, calculate the percentage change in CPI from a year earlier for each observation, beginning with the observation one year later than the first observation. To make this calculation, click on the blank cell next to the observation corresponding to that date and then use Formula 1, located in the Signature Assignment ExcelÂ® Formulas document (note that in ExcelÂ®, the symbol for multiplication is *), where t-1 is the first observation and t is the observation one year later. For example, to find the percentage change in CPI from 2010-11-01 to 2010-10-01, refer to Formula 2 located in the Signature Assignment ExcelÂ® Formulas document. Convert this value to a percentage in ExcelÂ®. Repeat this process for the remaining observations (you can use the copy and paste functions to avoid having to retype the formula).
- This new column contains the national inflation rate.
- Create a line graph of the percentage changes (inflation rates) from a year earlier.
- Which period experienced the highest inflation rate? What was the inflation rate during that period?
Format your paper consistent with APA guidelines.