Student simulation worksheet

Most of us feel that we are not average. You may wonder how a number like the Consumer Price index, which refers to average spending habits, can apply to you. The Custom Inflation Simulator provides a method to compare your spending to the national average.

1. If your spending habits differ from the average Canadian, changing prices may affect you more or less than the average.

Refer to the Custom Inflation Simulator.

Columns 2 and 3 of the Simulator show the national average spending and percentage price changes found by means of surveys. The numbers in column 4 may be changed to reflect your spending habits. Note for example that column 4 suggests you either rent or own a home. It would be most unusual for the average person to do both.

Assume that your budget is $20,000 for your first year of university, college or living on your own in the work force.

Change the numbers in column 4 of the Simulator to reflect your expected costs.

Be sure to include tuition costs if they apply to you. (Check tuition costs at /pub/81-582-x/2003001/excel/updates/chapB2.xls)

What was the actual result of your attempt at a $20,000 budget? _______________________________________________________

(Find your total in row 3, column 2, beside "Your spending and average price change.")

Assuming that you can find the money to pay for your first year, how much more money must you generate for the second year? (row 3, column 4)_______________________________________________________

What was the percentage increase in price? (row 3, column 5)________

Your spending pattern will cause your total price change to vary from the national average shown in row 1, column 5.

What is the difference in percentage? ________
How much money does that represent? _________

After conducting this simulation, would you be confident using the CPI to predict your future income needs? Explain why or why not. _______________________________________________________
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2. You probably found in the simulation exercise above that your total budget was not greatly affected by changes you made with your simulated spending habits. However, price changes can have a major impact on budgets. The price changes shown in column 3 of the Simulator represent a period of relatively low inflation. The major increases, such as those for tobacco products, were a result of government tax policies more than product price changes.

In the 1970s and 1980s, large increases in prices were usual and the CPI often jumped over 10% a year. These inflationary increases became a major concern for the average family budget.

Refer to the Simulator.

Assume that an oil shortage has caused crude oil prices to jump 50%. Change the percentages in column 5 to represent the impact you think higher petroleum product prices would have on each of the categories.

What is the new average price increase? (row 4, column 5)_________________

What is the effect on your planned budget for two years from now? _________________

How will you change your budget to live within your means? _______________________________________________________

Explain why newspapers in the 1970s and 1980s reported CPI changes monthly and labour negotiators read the numbers carefully.
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