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Lecture 2

ECN 204 Lecture Notes - Lecture 2: Price Level, Market Basket, Disposable And Discretionary Income

Course Code
ECN 204
Eric Kam

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ECN204 Lecture 2: Chapter 7 GDP and CPI
1. Unemployment and 2. Inflation
These are the two principal macroeconomic problems.
Inflation is an increase in average prices
The two big issues are
1) How do weight the different prices?
2) Which prices: prices
Of consumer goods and services?
Of all final goods and services?
Of intermediate goods and services?
Of core goods and services?
Price Indexes and the Aggregate Price Level
The Aggregate price level is a measure of the overall level of prices in the economy.
o Not a simple average
To measure the aggregate price level, economists calculate the cost of purchasing a
market basket. Some goods count for more than others/
A price index is the ratio of the current cost of that market basket to the cost in a base
year, multiplied by 100.
o Price Index
in a given
year :
Inflation Rate, CPI, and other Indexes
The Inflation rate is the yearly percentage change in a price index, typically based on the
Consumer Price Index, or CPI, the most common measure of the aggregate price level.
The CPI measures the cost of the market basket of a typical Canadian family
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