The Cost of Living
You may have heard people talk about the increased cost of living in certain towns and cities. Maybe you've noticed how the price of basic food and clothing items has increased in the last two to five years? Perhaps rental properties in your local area also cost more each month than they used to? All of these rising costs together make up the cost of living. This cost is what the average individual and family must pay for living in their area and sustaining a basic lifestyle.
Cost of living statistics are very useful indicators for economists because they track how much the price of goods and services is increasing each year. Economists use a cost of living index to measure this change in people's lives. An example of a common index used for this purpose is a price index known as the United States Consumer Price Index. This tracks the cost of all goods and services produced in the U.S over one year. Figures can then be compared to find out which goods and services have increased in price the most.
A cost of living index can also help governments address problems relating to poverty. For example, if the cost of living index in a major city rises ten points in one year, a person's income must increase to match it. If your income doesn't increase, then you are paying more for your goods and services than you did a year ago, which will impact upon your standard of living.
Cost of living indexes reflect price increases in specific geographic areas. For example, New York City has a higher cost of living than Milwaukee. People usually have to pay more to live in cities than they do to live in rural areas.
But what causes the price of goods and services to increase? Economists use the term “inflation” to describe a general increase in price measured against a standard unit of purchasing power such as a fixed wage. By taking the rate of inflation into consideration along with several other economic factors, governments can predict what the cost of living will be and plan accordingly.
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Banking - Business Finances - Economics - Insurance - Investing
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