Suppose you are a senator writing a bill to index Social Security and federal pensions: i.e., your bill will adjust these benefits to offset changes in the cost of living. The government budget is very tight. Which inflation measure will you use, the one based on GDP deflator or CPI? Briefly explain why.

The GDP deflator is a measure of the overall level of prices in the economy. It is calculated by…

Answered: Suppose you are a senator writing a…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter6: How Statisticians Measure Inflation

Section6.A: How Statisticians Measure Inflation

Problem 6TY

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Suppose you are a senator writing a bill to index Social Security and federal pensions: i.e., your bill will adjust these benefits to offset changes in the cost of living. The government budget is very tight. Which inflation measure will you use, the one based on GDP deflator or CPI? Briefly explain why.

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