ECO1102 Lecture 6: Lecture 6

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4 Aug 2016
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Lecture #6: Jan 28th
Chapter 6: Measuring The Cost Of Living
The consumer price index is used to monitor changes in the cost of living over time.
When the consumer price index rises, the typical family has to spend more dollars to
maintain the same standard of living.
MEASURING THE COST OF LIVING
Economists use the term inflation to describe a situation in which the economy’s
overall price level is rising.
The inflation rate is the percentage change in the price level from the previous period.
THE CONSUMER PRICE INDEX
T he consumer price index (CPI): the overall measure of the cost of the goods and services bought by a
typical consumer
How the Consumer Price Index Is Calculated
Every month, Statistics Canada computes and reports the CPI.
It uses data on the prices of more than 600 different goods and services.
To see how these statistics are constructed, a simple economy with two goods, hot
dogs and hamburgers, is used.
How the Consumer Price Index Is Calculated
Five steps to compute the inflation rate:
1. Determine the basket.
2. Find the prices.
3. Compute the basket’s cost.
4. Choose a base year and compute the index.
5. Compute the inflation rate.
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