Many government payments and policies are tied to the consumer price index (CPI)

Question

Many government payments and policies are tied to the consumer price index (CPI). The most important of these are Social Security payments, which represent nearly 25% of total federal spending. uppose that Megan currently receives Social Security payments and will continue to receive them next year. If the CPI rises by 4.2% this year, then next year the payment in each of Megan's Social Security payments will be______(less, greater) than this year's payments by______(3.9/ 4.2/ 2.2/ 1.3) percent.

Explanation / Answer

1. Greater.

Assuming that the social security payment is revised as per the CPI every year, then an increase in cost of living, with a higher CPI next year would increase the value of money and the purchasing power of the consumer.

2. By 4.2%

It would reduce the purchasing power by the same amount.

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