Question

Cost of living index number is used in calculating purchasing power of money.

Hint:

Think of it this way: if the Cost of Living Index goes up (inflation), your money's Purchasing Power goes down because you can buy less with the same amount. They are inversely related.

Answer 1

The Cost of Living Index Number (also known as the Consumer Price Index or CPI) measures the change in the general price level of goods and services that a household consumes. The purchasing power of money is the value of a currency in terms of the goods it can buy. It is inversely proportional to the price level. The formula to calculate it is: \[ \text{Purchasing Power of Money} = \frac{1}{\text{Cost of Living Index Number}} \times 100 \] Since the index is a direct component of the calculation, the statement is True.