Summary
Summary of Chapter 21: Measure the Cost of Living
- Course
- Institution
- Book
Summary of Chapter 21
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Economics Y2Q1
-
Summary International Macroeconomics For Business | IB year 2 | HvA
-
Summary economics IB year 2 Q1
1 review
By: jenniferp69 • 3 year ago
Seller
Followlucaallaart
Reviews received
Content preview
Chapter 21: Measure the Cost of LivingThe Cost of Living refers to how much money people need to maintain certain standards of
living in terms of goods and services they can afford to buy. Taking a snapshot of prices of
goods and services in an economy at a particular point in time gives the price level. To see
how the price level changes we need to find some way of turning money figures into
meaningful measures of purchasing power. The Consumer Price Index does that. CPI is
used to monitor changes in the cost of living over time. Inflation is to describe a situation in
which the economy’s overall price level is rising and deflation when the overall price level is
falling. The inflation rate is the percentage change in the price level over the previous period.
The Consumer Price Index
The Consumer Price Index (CPI) is a measure of the overall prices of the goods and
services bought by a typical consumer.
How the CPI is Calculated
1. Fix the basket: The first step to computing the CPI is to determine which prices are
most important to the typical customer, if the typical customer buys more salads than
burgers, then salad price is more important therefore should be given greater weight
in measuring the cost of living.
2. Find the price: Now we need to find the price of each of the goods and services in the
basket for each time point.
3. Compute the baskets costs: Then we need to calculate the cost of the basket of
goods and services at different times. We need to keep the quantity the same and
only the price will change to isolate the effects of price changes from quantity
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lucaallaart. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.91. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53340 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now