Question

In: Economics

which of the following measures gives the earliest warning of increasing inflation a. the producer price...

which of the following measures gives the earliest warning of increasing inflation a. the producer price index b. the consumer price index c. the personal consumption expenditure index d. all of these give similar answers

Solutions

Expert Solution

Option A is Correct.

Producer Price Index

Producer Price Index is the index used to measure prices received by domestic producers. It was formerly called the wholesale price index. The producer price index is used to gauge the rate of inflation and help the government understand how much prices are rising. It measures price changes paid by domestic producers for their inputs. The Producer Price Index can be considered a leading indicator of inflation. If prices increase at the wholesale level, these price increases are usually passed on to consumers, resulting in higher prices of goods.

Option B is wrong. The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer. The CPI is calculated by dividing the price of basket of goods and services by the price of basket in base year, then multiple that by 100. CPI is used to find inflation rate.

Option C is wrong. Personal Consumption Expenditure Index is an average of current prices of all goods and services included in the consumption expenditure component of GDP expresses as a percentage of base-year prices.

Rahul Sunny answered 1 year ago
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