The Consumer Price Index (CPI) measures inflation for every individual.
A) True, the weights used in calculating the CPI are adjusted for every individual in the country.
B) True, people all face the same prices and therefore face the same inflation.
C) False, the CPI uses weights based on how much each product represents in the typical household budget.
D) False, the CPI doesn't measure inflation.
Question 2
Before an uneven rise in prices Allan consumed 5 bread and 6 juice. After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice. Does the government payment represent a true cost-of-living adjustment (COLA)?
A) Yes, if the two consumption bundles lie on the same indifference curve.
B) Yes, if the second bundle yields more utility than the first.
C) No, the first bundle is clearly preferred.
D) Not enough information.
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