Macroeconomics

2-2

Measuring the Cost of Living: 

The Consumer Price Index

A dollar today doesn’t buy as much as it did twenty years ago. The cost of almost

everything has gone up. This increase in the overall level of prices is called infla-

tion, and it is one of the primary concerns of economists and policymakers. In

later chapters we examine in detail the causes and effects of inflation. Here we

discuss how economists measure changes in the cost of living.

The Price of a Basket of Goods

The most commonly used measure of the level of prices is the consumer price