Suppose the government were to determine the level of the state retirement pension in the UK so that it increased each year in proportion to the increase in the CPI.

a. If the elderly consume the same market basket as other people, would such a policy provide the elderly with an improvement in their standard of living each year? Explain.

b. In fact, the elderly consume more healthcare than younger people, and healthcare costs tend to rise faster than overall inflation. What would you do to determine whether the elderly are actually better off from year to year?