ECON 2105 Lecture 5: The Cost of Living and Living with Inflation
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8 Feb 2017
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Econ 2105 - lecture 5: the cost of living and living with inflation. If cost of living rises slower than your income, your standard of living will improve. If cost of living rises faster than your income, your standard of living will fall. U. s. cost of living rose about 2% over the last year. Cost of living is measured by the consumer price index (cpi: announced monthly by the department of labor"s bureau of labor statistics (bls) Cpi construction: cost of market basket of goods and services purchased by an average. Representative urban household: market basket updated every two years and established through surveys, bls re-prices the market basket monthly, cpi is the cost today divided by the cost in 1982-84. Biases in the cpi: assumes market basket from 2013-2014 in 2017, but in reality consumers will substitute away from costly goods, slow to recognize new products (takes up to 3 years, hard to measure quality improvements.
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