Question

MEDAL+ FAN

Answer 1

How may high demand and limited supply of products cause inflation?

Answer 2

@coolaidkiddo123

Answer 3

25% of limited supply cause inflation

Answer 4

How is the consumer price index calculated?

Answer 5

The BLS collects price information from 23,000 retail and service businesses. The businesses chosen are the types frequented by a sample of 14,500 families. The CPI includes sales taxes, but excludes income taxes and the prices of investments such as stocks and bonds. The complete list of everything it does measure, as well as the change in price for each item in 26 of the 87 cities measured, is on the BLS website. (Source: BLS, Frequently Asked Questions)

More important, the CPI does not include sales price of homes. Instead, it calculates the monthly equivalent of owning a home, which it derives from rents. This is very misleading, since rental prices are likely to drop when there is high vacancy, usually when interest rates are low and housing prices are rising. Conversely, when home prices are dropping due to high interest rates, rents tend to increase. Therefore, the CPI gives a false low reading when home prices are high (and rents are low). This is why it did not warn of asset inflation during the housing bubble of 2005.

Answer 6

How does inflation impact consumer buying power?

Answer 7

nflation and purchasing power are inversely proportional, meaning as prices increase with inflation, purchasing power of your dollar decreases. You get less for your money with inflation.