Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 20: Problem 2

Which price index does the government use to measure changes in the cost of living?

Short Answer

Expert verified
The Consumer Price Index (CPI) is the price index that the government uses to measure changes in the cost of living.

Step by step solution

01

Understanding the concept

First, it's important to know what a price index is. It's a statistical estimate that measures changes in the price levels of a market basket of consumer goods and services purchased by households.
02

Recognizing the commonly used price index

In most countries, the government typically utilizes a specific type of price index to measure changes in the cost of living. This price index is known as the Consumer Price Index (CPI).
03

Clarifying the use of CPI

The Consumer Price Index (CPI) is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Why do nominal incomes generally increase with inflation? If nominal incomes increase with inflation, does inflation reduce the purchasing power of an average consumer? Briefly explain.

In his 2016 State of the Union address, President Barack Obama observed that in the previous 70 months, the U.S. economy had created "more than 14 million new jobs." Is it likely that the U.S. economy created only 14 million jobs during this time period? If not, what was President Obama referring to?

If inflation is expected to increase, what will happen to the nominal interest rate? Briefly explain.

Suppose that Apple and the investors buying the firm's bonds both expect a 2 percent inflation rate for the year. Given this expectation, suppose the nominal interest rate on the bonds is 6 percent and the real interest rateis 4 percent. Suppose that a year after the investors purchase the bonds, the inflation rate turns out to be 6 percent, rather than the 2 percent that had been expected. Who gains and who loses from the unexpectedly high inflation rate?

The president of a manufacturing firm that makes precision tools in California's Silicon Valley was quoted in an article in the Wall Street Journal as saying that "production workers \(\ldots\) are scarce" and that "many applicants lack even the most rudimentary skills." He added, "I would say in this valley, people looking for jobs are unemployed for a reason." Are these applicants likely to be cyclically, frictionally, or structurally unemployed, and what would be the reason that most of them are unemployed? Briefly explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free