Cosumer Index Plan

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Qus : What methods of Index Number calculation is used to calculate Cost of Living Index (CLI). What methods of Index Number calculation is used to calculate Cost of Living Index (CLI).

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Cost of Living Index is a theoretical price index ,or general price index, showing the difference between the living cost between cities. The cost of living for the base city is expressed as 100 , The cost of living in the destination is then indexed against this number .The major cities in India are having cost of living index below the reference cities ,like Delhi having 63 ,Bangalore 62 and Kolkata having 42 in the list. The interpretation is like ,if a city is having CLI as 120 it is 20% more expensive than the base city. So ,on a broader note CLI gives a picture as to how costly a city is compared to other cities.
Items contributing to consumer price index are generally: * Food * Clothing * Fuel and Lighting * Housing * Miscellaneous.

The Cost of living is indexed because :

* CLI numbers are used for adjustment of dearness allowance to maintain the same standard of living. * It helps in framing suitable policies . * It also reveals trends and tendencies . * The numbers are useful in deflating. * Its helps in measuring purchasing power of money.

The consumer price index (CPI) is the primary measure of the cost of living. Now to compute the CPI we need to determine what prices are important to the typical user. Then to find the prices of the goods and services. Then we need choose between :

Fixed Base Method: Under this method index number is calculated with a fixed base year. By this method the index number of a given year is not influenced by the variation of prices of any other year.…...

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