Measuring the Cost of Living
Consumer Price Index (CPI)
-Used to determine inflation
-Monitor changes in the cost of living over time.
-The overall cost of G&S bought by a typical consumer.
-Overall price of items is rising
-Determined by CPI
-Overall price is dropping.
Producer Price Index
-Better for predicting changes in CPI
-The CPI assumes people buy the same amount of each item regardless of price changes.
-Introduction of New Goods
-With new goods introduced there are more item