Many of you live in an area with high cost of living. Is that something you considered before you moved to a ski area?
I do live in an area with a high cost of living. It was not something I considered when I moved here over ten years ago, however, it is something I think about today.
1. How much can someone change the rate of inflation they face by changing what they purchase? Is this a serious overestimation problem with the CPI? Do you time your purchases around sales? Do you change your purchases because of sales?
Someone can change the rate of inflation they face by changing what they purchase only in certain areas. Things like medical bills are needed expenses vs. clothing can be a choice. An increase in prices of goods have been normal year after year. There is a serious overestimation problem with the CPI. Personally, I do time my purchases around sales and I do change purchases because of changes.
2. What about the distortion caused by improvements in goods? Do you think that is a serious problem in measurement? Back in the 1970’s my Dad purchased an early calculator. It handled addition, subtraction, multiplication, and division. It cost nearly $100. Phones have a similar challenge as do cars and even airport bathrooms. If your raise last year was 2% and inflation was 2% did you break even? Or did your life improve?
The distortion caused by improvements in goods is it creates unmeasured quality change. If the quality rises from one year to the next, the value of the dollar rises. The BLS does not account for this change. I do not think this is a serious problem in measurement. I thinks someone could say it was a break even, however, one would need to consider the improvements on the day to day life.
Principles of Macroeconomics Spring 2020 