1. What is the consumer price index (CPI)? How is it measured? What are the pros

Question

1. What is the consumer price index (CPI)? How is it measured? What are the pros and cons of using the CPI as a measure of the cost of living? Use examples in your response.

2. Suppose that you are the chief economic advisor to the president of the U.S. You are asked to propose a strategy to bring the economy out of recession. Your goal is to avoid inflation and yet bring the economy to full employment as rapidly as possible. What will be your main strategy? Why? Use examples and give reasons to support your strategy.

Explanation / Answer

CPI = measures changes through time in the price level of consumer goods and services purchased by households. There's about 100 goods used for this, they just find the net change and use it to measure inflation. Pros: it's easy to find compared to other methods. it makes sense to normal people. They're usually the goods that actually matter in cost of living (luxury items don't really matter) Cons: some of these items stay constant even during recession - like food prices. Other items might really matter that aren't included. Alot of things affect the CPI like foreign markets that are independent of actual inflation. I would use supply side economics and remove quality restrictions. There is no actual change of money, so no risk of issues. However, these companies could produce more since there are less restrictions meaning they will hire and meaning prices can come down since they can make more crappy products. -It doesn't affect inflation -It creates jobs -We can always reverse it when things are better

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.