Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 4

The chapter explains that Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation.
a. If the elderly consume the same market basket as other people, does Social Security provide the elderly with an improvement in their standard of living each year? Explain.
b. In fact, the elderly consume more healthcare compared to younger people, and healthcare costs have risen faster than overall inflation. What would you do to determine whether the elderly are actually better off from year to year?