# Chapter 6 - Chapter 6 Measuring the Cost of Living 1....

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Chapter 6 – Measuring the Cost of Living 1. Consumer Price Index a. Used to monitor change in cost of living over time. b. Higher CPI means typical family pays more to maintain their living standard. (Inflation) c. Bureau of Labor Statistics – How to calculate price and inflation i. Fix the Basket – Determine which prices are most important to typical consumer. Greater weight given to more products sold of an item. ii. Find the Prices – Determine price of each good/service in basket for each year. iii. Compute the basket’s costs – Calculate costs based on prices for each year on items sold. Isolate effects of price change by keeping quantity the same. iv. Choose base year and compute index – CPI= Price of basket of goods divided by price of basket in base year. Multiplied by 100. 1. CPI=(Good Price/Base year cost)X100 2. Done for each year examined. CPI for base year will always be 100 . v.

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## This note was uploaded on 12/03/2008 for the course ECO 2013 taught by Professor Johnhodgson during the Spring '08 term at University of South Florida.

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Chapter 6 - Chapter 6 Measuring the Cost of Living 1....

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