Unemployment and Inflation Who Counts in Unemployment?

Inflation Rate: the percentage change in some price index

Market Basket: hypothetical collection of goods and services (or more precisely, the quantities of each good or service) consumers typically buy

Price Indices: essentially the weighted average of prices of a certain type of good or service; price indices are created to calculate the inflation rate, i.e. the percent change in prices over time

Price Level: the average of prices

Index Numbers

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  A price index is essentially the weighted average of prices of a certain type of good or service
  
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  Price indices can measure a narrow range of goods and services or a broader range of goods and services
  
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  Price indices are created to help calculate the percent change in prices over time
  

The Consumer Price Index

Consumer Price Index: the average price of the goods and services typically purchased by urban consumers

The Eight Major Categories in the Consumer Price Index

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  Food and beverages
  
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  Housing
  
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  Apparel
  
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  Transportation
  
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  Medical Care
  
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  Recreation
  
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  Education and communication
  
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  Other goods and services
  

Shortcomings of the Consumer Price Index as a Measure of the Cost of Living

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  Core Inflation Index: version of the CPI excluding volatile economic components like energy and food prices.
  
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  Improved Quality/New Goods Bias: As the quality of goods improves over time, and as new goods become invented, the prices of those goods naturally increase reflecting their increased value; the result is that the CPI overstates the cost of living since some of the price increases it measures represent increases in value, not cost.
  
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