ECON 105 Lecture : Chapter 6 Inflation

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: David Cox

Document Summary

Consumer price index (cpi: cpi tracks consumer prices, cpi market basket. Computation of the cpi: select a base year, formula: Cpi = (cost of market basket in current year)/(cost of market basket in base year) x 100. 1992: cost of market basking using 1992 prices = . 1993: cost of market basking using 1993 prices = . 1994: cost of market basking using 1994 prices = . Cpi in 1992 = 1200/1200 x 100 = 100. Cpi in 1993 = 1236/1200 x 100 = 103. Cpi in 1994 = 1298/1200 x 100 = 108. 2. Inflation rate: the percentage change in the price level from one period to the nextx. Inflation rate between 1993 and 1994 = (108. 3 103)/103 x 100. How is the cpi used: policy target, to index payments, to translate from nominal (current) to real (base) variables. Real wage in any year = (nominal wage in that year) / (cpi in that year) x 100.