Question

How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?

Short answer

The consumer price index would be best to use to adjust your paycheck for inflation.

Step-by-step solution

Step 1. Price Index.

Thechanges in the price level of commodities in the current period as compared to the base year are called the price index.

Step 2. Explanation.

The consumer price index shows the average increase in the cost of the commodities consumed by a class of people so they can maintain the same standard of living in the current year as in the base year.

Step 3. Explanation.

Consumer Price Index measures the prices of the goods and services bought by the urban consumer, it measures the price of things that people buy with their paycheck so CPI would be the best price index to use for this purpose.