Inflation rate is usually measured by CPI, which is to measure changes in the price level of market basket of consumer goods and services purchased by households. Therefore, it is reasonable to accumulate individual consumption and production, these microeconomic factors to model the inflation rate, which is a macroeconomic concept. Nowadays, accumulating microeconomic models to model the macroeconomic issues has become very common and popular.
To accumulate individual consumptions to model the total demand in the economy, I think we need an equation that contains the consumption as the dependent variable, and wealth, goods’ elasticities of demand and other relevant factors as the independent variables. And the total supply should include the individual costs of production, other productive factors.
The problem in this way of modelling is that we have to take account of all factors that determine the different individuals’ consumption decisions and form a general formulate which is suitable for the majority of the population. In addition, we have to ensure that the sums of the factors that are included in the general formula are measurable or at least estimable. On the other hand, the general formula for the supply side should have the similar quality.
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