1CHAPTER 10MEASURING A NATION’S INCOME0The Consumer Price Index (CPI)Measures the typical consumer’s cost of living.The basis of cost of living adjustments (COLAs) in many contracts and in Social Security. CHAPTER 10MEASURING A NATION’S INCOME1How the CPI Is Calculated1.Fix the “basket.”2.Find the prices.3.Compute the basket’s cost.CHAPTER 10MEASURING A NATION’S INCOME2How the CPI Is Calculated4.Choose a base year and compute the index.The CPI in any year equals5.Compute the inflation rate.The percentage change in the CPI from the preceding period. 100 xcost of basket in current yearcost of basket in base yearCPI this year–CPI last yearCPI last yearinflationratex100%=
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