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    Does the CPI Accurately Measures the Rate of Inflation

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    When a person receives government payments from Social Security or other programs the monthly benefits are raised each year to keep up with the CPI. These increases are supposed to make sure that benefits increase enough that recipients can maintain the same standard of living. Do you think that the CPI accurately measures the rate of inflation?

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    Solution Preview

    In economics, inflation is 'a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency'. That means that higher prices are the result of the government putting more money and credit into the markets. And when more money circulates than the supply of goods available, inflation occurs. In theory, inflation is a measure of the ratio between money supply and goods available.

    The Consumer Price Index was designed to reflect spending patterns of 87% of the US population. It is those who live and work in or near cities, but not farmers, not military personnel and not ...

    Solution Summary

    The 390 word solution explains the concept and calculations for the CPI including its limitation and effects on those whose income is adjusted by CPI. 389 words with 3 references.