The study of economics is the study of how society allocates its resources. The basic principles used in economics are the rules of supply and demand, preferences, cost and benefit, production relationships and exchange (Reynolds, 2016). At the heart of these principles is the belief that resources are allocated based on the highest use value (Reynolds, 2016). When studying the dilemma of allocation, economists ask basic questions about goods and services. These questions include what goods and services should be produced, how much of these goods and services should be produced, how should they be produced, when should they be produced, and how should the goods and services be distributed in society (Reynolds, 2016). By answering each of …show more content…
This index tracks average changes in the prices consumers pay for goods and services over time (Consumer Price Index Frequently Asked Questions, 2017). Data gathering for the CPI is completed by sampling methods. Once the sampling is completed, the data is turned over to Bureau of Labor Statistic commodity experts, who determine if the information is accurate and then make adjustments to the CPI (Consumer Price Index Frequently Asked Questions, 2017). One of the most common applications for the Consumer Price Index is determining if an economic inflation or deflation is occurring in a country. Inflation is occurring if there is a large rise in CPI over a short period of time. Conversely, deflation is occurring if there is a sharp decrease in CPI over a short time period. One of the most common applications for the Consumer Price Index is the determination of fiscal policy by economists and governments based on this information. In addition, in the United States, Congress and the Federal Reserve establish interest rates based on the CPI, which has a major impact on the financial lives of millions of