Using the CPI to compensate workers for inflation is appropriate because,in the face of a change in relative prices,people should be allowed to purchase the same bundle as they did before the price changes.

Question

Quizplus · Accepted Answer

This assumes that people would still prefer the original bundle.Because they are facing a new set of relative prices,compensating people so that they could purchase the original bundle will allow them to be able to achieve a higher level of utility than they did before the price changes.

Using the CPI to Compensate Workers for Inflation Is Appropriate