Question

Inflation, as measured by percentage changes in the CPI, Multiple Choice concerns policymakers more than the level of core inflation. is generally more volatile than core inflation. does not include the most price-flexible goods in the economy. is generally less volatile than core inflation.

Answer 1

Answer:

To answer properly, it is better to define core inflation:

Core inflation measures the changes in goods and services excluding from the analysis the prices of food and energy sectors, which fluctuate more than the rest of the elements of the index.

Then, when inflation is calculated, the prices of all goods and services included in the CPI are used, while when core inflation is calculated, prices of food and energy sector are excluded.

Core inflation allow us to perceive long term tendencies in prices.

• Concerns policymakers more than the level of core inflation. FALSE: while core inflation allow us to follow tendencies in the price levels, inflation may change suddenly because of an abrupt change in energy prices, for example, which may be seasonal, not representing a sustainable  in the long run prices tendency.
• Is generally more volatile than core inflation. TRUE. Inflation measure does include the changes in prices of food and energy, which by nature are more unstable than the rest of the prices in the economy, making inflation measure  more volatile than core inflation.
• Does not include the most price-flexible goods in the economy: FALSE (this will be core inflation instead of inflation).
• Is generally less volatile than core inflation. FALSE: see definition of core inflation above and its implications.