Question

Which is the smallest expenditure category in the US CPI?

a. Recreation

b. apparel  

c. other goods and services

The percentage change in the price level from one time period to the next, will be the ________.

a. price index

b. size of the business cycle trough

c. inflation rate

Henry accepted a new position at a ball bearing manufacturing plant after graduation from college. With his macroeconomic education, Henry has been asked to advise the best way to measure inflation for the company to be able to accurately adjust its prices. What would Henry advise the company use?

a. GDP Deflator

b. Consumer Price Index

c. Producer Price Index

Answer 1

1. Consumer price index or CPI can be defined as a measure used to estimate changes in a basket of good and services consumed by people over a certain period. It includes expenditure on various goods and services and basically tracks changes in their price. The smallest expenditure category in the US CPI is apparel, its share is lowest among all the categories.

So, the correct answer is option B.

2. Inflation can be defined as a general and continuous increase in price over a certain period. It reflects a decline in the purchasing power of money. Inflation rate is the rate at which this increase in price level takes place.

So,the correct answer is option C.

3. Similar to CPI, producers price index or PPI can be defined as a measure used to estimate change in a basket of goods and services produced by manufacturers or producers. It is a measure of inflation or deflation. Contrary to CPI,it measures changes in price from producer's point of view.

So, the correct answer is Option C.