Chapter 24 Journal

Chapter 24 included how the consumer price index shows the cost of goods and services relative to the cost of the same goods and services in the base year. The index is used to measure the overall level of prices in the economy. The percentage change in the consumer price index measures the inflation rate. The consumer price index is an imperfect measure of the cost of living for three reasons. First, it does not take into account consumers’ ability to substitute toward goods that become relatively cheaper over time. Second, it does not take into account increases in the purchasing power of the dollar due to the introduction of new goods. Third, it is distorted by unmeasured changes in the quality of goods and services. Because of these measurement problems, the Consumer Price Index overstates true inflation. I would give this chapter a difficulty rating of 1/3.