[Related to the Apply the Concept on page 543] August 2017 was the sixty-fourth consecutive month that the rate of inflation as measured by the core personal consumption expenditures (PCE) price index...

[Related to the Apply the Concept on page 543] August

2017 was the sixty-fourth consecutive month that the rate

of inflation as measured by the core personal consumption expenditures (PCE) price index was below the Federal

Reserve’s target of 2 percent.

a. Briefly explain why using the consumer price index

(CPI) might yield a rate of inflation different from that

found using the core PCE price index.

b. Explain how the choice of the price index the Federal

Reserve uses to measure inflation can affect monetary

policy.