Economics Question:
Download Questions PDF

What is inflation and how is it measured?

Answer:

Inflation means an overall increase in the prices of goods and services. It is a decrease in the value of a currency. There are three types of measurement, Core Inflation, CPI, and WPI. Core Inflation is a measurement of non-volatile goods such as food and non-precious metals. It leaves out goods like oil because oil's price is subject to wild fluctuations. CPI is the most common measurement, using a market basket of goods and measuring their price from a point in the past (a CPI of 100 is arbitrarily the same price level for 1982-1984). Thus, the equation is (Price of most recent market basket/price of same market basket in 1982-1984) X 100. The 100 is to give us the number we normally see. WPI is Wholesale Price Index. It is a measure of wholesaler's prices and is generally considered a pre-cursor to what CPI will be (as it takes time for goods to read the consumer).

Download Economics Interview Questions And Answers PDF

Previous QuestionNext Question
Is it true that government revenues are increased because of lower tax rates?How is education an investment in human capital?