The cost of living refers to the amount of money needed to sustain basic expenses such as housing, food, transportation, healthcare, and other necessities in a particular location. It varies from place to place due to factors like wages, taxes, prices, and quality/availability of goods and services.
Imagine cost-of-living as purchasing power at different stores. In some places, you can buy more items with less money due to lower prices or better deals. Similarly, cost-of-living accounts for these differences in expenses across different locations.
Consumer Price Index (CPI): CPI measures changes in the average price level over time for goods and services frequently purchased by households.
Purchasing Power Parity (PPP): PPP is a theory that compares the cost of living between different countries by taking into account the relative prices of goods and services.
Inflation: Inflation refers to the general increase in prices over time, resulting in reduced purchasing power of money. It affects the cost of living as it erodes the value of currency.
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