Question

Determine which measure of inflation should be used in each of the given scenarios. a. You're a buyer at an auto factory, and your manager asks you to determine whether your factory is experiencing price increases, similarly to other factories in the rest of the country. The is the best measure of inflation in this scenario because it tracks the prices of . b. A teacher's union wants to include annual cost‑of‑living adjustments in the next contract. The is the best measure of inflation in this scenario because it tracks the prices of .

Answer 1

Answer:

a. PPI or Producer Price Index because it measures the input used for production.

b. CPI or Consumer Price Index because it measures the cost of common household purchases.

Explanation:

Inflation is general rise in the price level. There are various measures of inflation such as CPI, RPI, CPIX, CPI-CT and core inflation. This inflation measure selection is based on the scenarios by which criteria is made for selection. The businessmen will measure inflation with a different method as compared to a common man.

a. A factory owner will measure the inflation based on PPI. Producer price index measures the change in price of goods sold by manufacturer.

b. A teacher union will measure the inflation as CPI. Consumer price index is the best measure of inflation for a consumer.