ECO 181 Lecture Notes - Lecture 2: Gdp Deflator, Real Interest Rate, Capital Good

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harlequinsnail224

14 Feb 2018

School

University at Buffalo

Department

Economics

Course

ECO 181

Professor

Xinyan Chen

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Document Summary

Measures of the overall cost of goods and services. Inflation rate = cpi this year-cpi last year/cpi last year x 100. The introduction of new goods increases variety. Allows consumers to find products that more closely meet their needs. The cpi misses this effect because it uses a fixed basket of goods. Improvements in the quality of goods in the basket increase the value of each dollar. The bls tries to account for quality changes but probably misses some, as quality is hard to measure. Thus, the cpi overstates increases in the cost of living. Each of these problems causes the cpi to overstate cost of living increases. The bls has made technical adjustments, but the cpi probably still overstates inflation by about 0. 5 percent per year. This is important because social security payments and many contracts have. Included in gdp deflator (if produced domestically) Inflation makes it harder to compare dollar amounts from different times.

Related Questions

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

Three goods are consumed in an economy during years 1 and 2. The table shows prices (P1 and P2) for each good, and it shows the market basket that is used to calculate the consumer price index. The base year is year 1.

Good	P1	P2	Basket
Milk (gallons)	$4	$4.20	4
Chicken (pounds)	$5	$5.50	10
Onions (bags)	$2	$2.32	1

Enter numbers in each blank, rounded to two decimal places as necessary. The cost of the basket in year 1 is $____ and the cost of the basket in year 2 is $_____. The value of the CPI in year 1 is _____ and the value of the CPI in year 2 is ______. The inflation rate is equal to ______%.

turquoisesardine982

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

ECO 181 Lecture Notes - Lecture 2: Gdp Deflator, Real Interest Rate, Capital Good

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