🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

ECON 1020H Lecture Notes - Lecture 3: Core Inflation, Market Basket, Stagflation

51 views6 pages
magentalizard123
26 Jan 2017
School
Trent University
Department
Economics
Course
ECON 1020H
Professor
Turner Russell

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

A measure of the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services. The cpi is defined to equal 100 for a period called the base period. If in 2003 the cpi was 104 and the base year was 2002= 100 -- prices rose by 4% Cpi equation = new-old/100 x 100 so 104-100/100 x 100. The cpi basket contains the goods and services represented in cpi index and the relative importance attached to each of them. The idea is to make the relative importance the same as in the budget of an average urban & rural household. Find the cost of the cpi basket at base period prices. Find the cost of the cpi basket at current period prices. Calculate the cpi for the base period and the current period. Base year consumer price: 40 +10 = . 2004 consumer price = + = 70.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Questions

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Year

Consumer Price Index

Inflation Rate

2005

100

2006

115

B

2007

125

C

2008

140

D

2009

A

10%

2010

160

E

8.7%

120

25%

12%

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

5.9 percent between the first and second years, and 8.3 percent between the second and third years.

5.6 percent between the first and second years, and 7.7 percent between the second and third years.

10 percent between the first and second years, and 15 percent between the second and third years.

80 percent between the first and second years, and 95 percent between the second and third years.

0.1 points

QUESTION 17

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.

7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.

5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.

7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years

0.1 points

QUESTION 18

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

The real interest rate is the nominal interest rate times the rate of inflation.

The real interest rate is the nominal interest rate plus the rate of inflation.

The real interest rate is the nominal interest rate divided by the rate of inflation.

0.1 points

QUESTION 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent.

-4 percent.

3 percent.

8 percent.

0.1 points

QUESTION 20

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

9.5 percent.

4.5 percent.

-4.5 percent.

-9.5 percent.

. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

0.9%

9.0%

2.5%

90%

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

20.0%

45.5%

16.7%

9.1%

. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket’s cost was $80; in 2014, the basket’s cost was $86; and in 2015, the basket’s cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

112.5 and the inflation rate was 4.6%.

112.5 and the inflation rate was 12.5%.

104.6 and the inflation rate was 12.5%.

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket’s cost was $80; in 2008, the basket’s cost was $92; and in 2010, the basket’s cost was $108. The base year must be

The base year cannot be determined from the given information.

2002

2008

one of the years between 2008 and 2010.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket’s cost was $80.00; in 2013, the basket’s cost was $84; and in 2014, the basket’s cost was $87.60. The value of the CPI was

All of the above are correct.

109.5 in 2014.

105 in 2013.

100 in 2012.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The inflation rate is defined as the

percentage change in the price level from the previous period.

price level in an economy.

change in the price level from one period to the next.

price level minus the price level from the previous period.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

some prices are rising faster than others.

the economy's overall price level is high, but not necessarily rising.

the economy's overall output of goods and services is rising faster than the economy's overall price level.

The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a basket of goods and services a typical consumer would purchase. Each good and service is assigned a weight or percentage of income spent on that product. For example, cakes, cupcakes, and cookies are given a weight of 0.197. This means that about 0.2% of the average household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumer's.

Part I

Consider these specific categories:

Category

CPI Weight

Your Budget

Health Insurance

0.5

  

Jewelry

0.3

  

Household Cleaning Supplies

0.4

  

Gasoline

4.9

  

Food Away from Home

5.9

  

How closely does your household spending correlate to the typical consumer's? Is it realistic that the typical household spends about as much on health insurance as it does on cleaning supplies? Should the Bureau of Labor Statistics adjust its CPI weights after the new federal health care mandate starts? What might this mandate do to inflation? In an economic contraction, what would you expect to happen to spend in each of these categories, if health insurance is mandated?

The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a 'basket of goods and services' a 'typical consumer' would purchase. Each good and service is assigned a 'weight' or the percentage of income spent on that product. For example, 'cakes, cupcakes, and cookies' are given a weight of 0.197. This means that about 0.2% of the 'average' household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumers.

Part I

Considering your household budget, divide up your spending into these eight broad categories:

Category CPI Weight Your Budget
Food and beverages 14.8  
Housing 41.5  
Apparel 3.6  
Transportation 17.3  
Medical Care 6.6  
Recreation 6.3  
Education & Communication 6.4  
Other 3.5  
Total 100 100

How closely does your household spending correlate to the typical consumer? How might your household be disproportionately affected by a change in one of these broad categories? Do you believe that the government's weightings are an accurate approximation for the whole economy?