1. The CPI and an Individual's Cost of Living
Read "The Consumer Price IndexWhy the Published Averages Don't Always Match An Individual's Inflation Experience" at http://www.bls.gov/cpi/cpifact5.htm.

1. Why does the mix of goods that you buy determine how well the CPI explains the effect of inflation on the purchasing power of your income?
   
   
2. Why does geographical location have an effect on how well the CPI measures changes in your cost of living?
   
   
3. Suppose that the price of heating oil rises at twice the rate of inflation. For which portions of the country would the CPI overstate the effect of inflation? For which portions of the country would the effect of inflation be understated?
   
   

2. Human Development Index
Read the United Nation Development Programme's discussion of the Human Development Index at http://www.unpd.org/hdr2003/faq.html - 21.

1. What are the advantages of using a measure such as the Human Development Index to compare economic well-being across countries?
   
   
2. Why might there be some problems is using per capita GDP as a way of comparing economic well-being in different countries? As part of your answer, consider the effect of differences in
   
   
   1. Household production
      
      
   2. Pollution
      
      
   3. Crime
      
      
   4. Leisure time
      
      
   5. Income distribution
      
      
3. While the Human Development Index may be a reasonable measure to compare well-being in different countries, would it be a very useful guide for policymakers conducting fiscal and monetary policy in a given economy? Why are most government policymakers more concerned with GDP?