Chapter 6 Measuring the Cost of Living - Full Notes

Chapter 6 Measuring the Cost of Living - Full Notes - 61...

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Introduction: o Consumer Price Index (CPI) is the most commonly used price index in the economy o It is a key economic indicator o It is the measure of the overall cost of the goods and services bought by a typical  consumer household (the goods and services are referred to as a basket of goods and  services) o The basket of goods and services is fixed and is revised periodically (about every 5  years by Statistics Canada) o The basket is chosen by Statistics Canada and is representative of the purchases of an  average consumer located in a city with a population of at least 3000 (more than 600  separate items are priced each month in selected stores) o The CPI is used to monitor changes in the cost-of-living over time o When the consumer price index rises, the typical family has to spend more dollars to  maintain the same standard of living o Economists measure inflation by calculating the percent change in the consumer price  index from one time period to the next o The CPI is used to index transfer payments to the rate of inflation; for example if inflation  rises by 1% then transfer payments such as the Canada Pension Plan rise by 1% o About one million Canadian union workers have their wages tied to the CPI through  6-1
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COLA (cost-of-living allowances) clauses in their wage contract o The CPI is also used to raise family support payments to keep pace with inflation and by  landlords to increase rent when inflation rises 6-2
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Chapter 6:  Measuring the Cost of Living o Inflation  o A rise in the overall level of prices o Deflation  o The opposite of inflation o A fall in the overall level of prices 6-3
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o Disinflation  o A decrease in the rate of inflation 6-4
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Chapter 6 Measuring the Cost of Living - Full Notes - 61...

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