Answer to Question #164964 in Macroeconomics for Reva Kollie

Question

If we want to look at changes in the cost of living, why don't we track differences in each households actual expenditures from one year to the next, rather than a market basket? Offer several reasons why this method would fail to capture changes in the overall price level automatically

Answer 1

Difficulty in calculations since consumers hardly keep accurate records.

Actual expenditure may include outside country spendings which cannot be accounted for.

People's consumption may change over time due to changes in income