Chapter 13.2, Problem 4R

To determine

To discuss: The ways in which monitoring the prices of producers can help predict the change in CPI.

Explanation of Solution

The measure of change in the prices that are spent by an average household in buying the required products and services is termed as consumer price index. CPI measures inflation and how the change in price level affect the customers.

The prices determined by producers are monitored to determine the change in CPI. This is because the producer price index increases before the consumer price index. When the prices of products rise with the producers, it eventually will increase further and hence the consumers have to pay more for that goods. The change in producer prices are considered as hint for an increase in CPI.

Economics Concept Introduction

Introduction:

Inflation- An increase in the general price level of products and services for a long period of time in an economy is termed as inflation. In situation of inflation, people spend more money considering it less valuable in future and hence it increases GDP in a shorter time period. The two measures for inflation are consumer price index and producer price index.