ECON 102 Lecture Notes - Lecture 6: Market Basket, Real Interest Rate, Nominal Interest Rate

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crimsongrasshopper606

18 May 2017

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Price indexes: can hold constant, prices and all quantities to vary (gdp de ator, quantities to allow prices to vary (cpi) The consumer price index (cpi: cpi: the overall measure of the cost of the goods and services bought by a typical consumer. Five steps to compute the in ation rate: determine the basket, find the prices, compute the basket"s cost, choose a base year and compute the index (change in index = change in. Price of basket of goods/services in current year. Cpi in year 2 - cpi in year 1. Cpi basket: the basket of goods and services. Goods and services spent the most on: shelter (27. 5%, transportation (19. 3%, food (16. 1%) ** need to know these top 3 ** Cause in ation to be overstated in the economy. Taken together, these sources of bias cause the cpi to overstate the cost of living by. 0. 6 percentage points a year according the bank of canada.

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There are many different types of market baskets that economists measure. For example, the market basket for consumers called the 'Consumer Price Index' tracks the prices associated with the typical consumer's purchases of goods and services. The 'Producer Price Index' tracks the prices that firms receive when selling their goods and services.

Indicate the appropriate market basket to use in each of the following instances.

Consumer Price Index:

a)	Measuring differences in the cost of living between different cities.
b)	Examining price changes that might affect businesses.
c)	Measuring the cost of living for a typical consumer.

Producer Price Index:

A)	Measuring differences in the cost of living between different cities.
B)	Examining price changes that might affect businesses.
C)	Measuring the cost of living for a typical consumer.

amaranthbuffalo689

Which of the following statements is true about the consumer price index (cpi):

A.It measures cost of representative basket of goods at the level of first significant commercial transaction

B.It measure of the average prices paid by consumers for all goods and services

C.It is used to measure the standard of living in an economy

D.It measures the average prices paid by consumers for a fixed basket of goods services

E. None of the above

beigebee838

Measures of Inflation The GDP deflator is the broadest, most inclusive measure of change in the country's price level since it includes all final goods and services produced and sold. But the GDP deflator is not used by the government or economists as the benchmark measure of inflation; instead, the consumer price index (CPI) is used to determine changes in the cost of living. What is the shortcoming of the GDP deflator as a measure of inflation for households, and why is the CPI considered to be a more useful measure?

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ECON 102 Lecture Notes - Lecture 6: Market Basket, Real Interest Rate, Nominal Interest Rate

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