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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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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.

See Also This Related BrainMass Solution

Consumer Price Index calculation

Make a chart that lists three strengths and three weaknesses of the Consumer Price Index calculation.

Post a response that answers the following questions once your chart is complete:

o What are the characteristics of the items listed as strengths?
o What are the characteristics of the items listed as weaknesses?
o If the CPI is imperfect, why do we use it?

Please give refrences

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