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What is Consumer Price Index
CPI is a price index of a specific basket known as the CPI-basket. CPI-basket contains essentially all the service and goods consumed in a country - food, medicine, gas, haircuts, house rent, transportation and so on. Composition of the CPI basket is concluded by value of what is consumed in country - the larger the value of total consumption of a service or good, the larger the weight in basket.
Consider the following model of an economy that begins in a macro equilibrium,
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