ECON102 Lecture Notes - Gdp Deflator

31 views6 pages
Published on 16 Oct 2011
Department
Course
Econ 102 Chapter 6 Notes Prof: Angela Trimarchi
Chapter 6: Measuring the Cost of Living
Inflation : A rise in the overall level of prices
Deflation : A fall in the overall level of prices
Disinflation : A decrease in the rate of inflation
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in
Econ 102 Chapter 6 Notes Prof: Angela Trimarchi
4 steps to constructing a price index:
1. Fix the Basket
2. Find the Prices
3. Compute the Basket’s Cost
4. Choose a Base Year and Compute the Index
Compute the Inflation Rate
Calculation of a Price Index
Consumer Price Index =
Cost of a fixed basket in current year * 100%
Cost of a fixed basket in base year
Macroland example:
1990 1991
Quantity Price Quantity Price
Milk (bags) 160 $1.10 150 $1.20
Compact Discs (#) 5 $15.00 10 $16.00
Cost of basket in base year (1990):
= Pmilk1990 (Qmilk1990) + PCD1990(QCD1990)
= $1.10(160) + $15.00(5)
= $251
Cost of basket in the current year (1991):
= Pmilk1991 (Qmilk1990) + PCD1991 (QCD1990)
= $1.20(160) + $16.00(5)
= $272
CPI1991
= $272 * 100
$251
= 108.37%
Question One:
If the CPI in Year 1 is 125 and the CPI in year 2 is 150, calculate the
inflation rate.
Answer:
20% - Measured by the percent change in the CPI
Formula for Percentage Change:
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Notes+

Unlimited access to class notes and textbook notes.

YearlyBest Value
75% OFF
$8 USD/m
Monthly
$30 USD/m
You will be charged $96 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.