AUECO102 Lecture Notes - Lecture 2: Nominal Interest Rate, Real Interest Rate

41 views3 pages

sapphiredonkey827

13 Sep 2017

School

University of Alberta

Department

Augustana Faculty - Economics

Course

AUECO102

Professor

yasserfahmy

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

Document Summary

Measuring the cost of living: in ation refers to a situation in which the economy"s overall price level is rising, the in ation rate is the percentage change in the price level from the previous year. How the cpi is calculated: determine the basket: determine what prices are most important to the typical consumer. Designate one year as a base year, making it the benchmark against which years are compared. Problems in measuring the cost of living. Substitution bias: the basket does not change to re ect consumer reaction to changes in relative prices. Consumers substitute toward goods that have become relatively expensive. The index overstates the increase in cost of living by not considering consumer substitution. Introduction of new goods: the basket does not re ect the change in purchasing power brought in by the introduction of new products. New products result in greater variety, which in turn makes each dollar more valuable.

Related Questions

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

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?

azurecrow98

AUECO102 Lecture Notes - Lecture 2: Nominal Interest Rate, Real Interest Rate

Document Summary

Get access

Related Documents

AUECO102 Lecture Notes - Lecture 7: Classical Dichotomy, Economic Equilibrium, Savings Account

AUECO102 Lecture 7: AUECO 102- Lecture 7

AUECO102 Lecture Notes - Lecture 3: Capital Accumulation, Foreign Direct Investment, Diminishing Returns

Related Questions