ECON 1BB3 Chapter 6: Chapter 6 - Measuring the cost of living

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silvergerbil904

4 Feb 2012

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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Chapter 6 measuring the cost of living. Cpi is used to monitor changes in the cost of living over time. When cpi rises-typical family has to spend more dollars to maintain same standard of living. Inflation is used to describe a situation in which the economy s overall price level is rising. Inflation rate is the percentage change in the price level from the previous period. Cpi is a measure of the overall costs of the goods and services bought by a typical consumer. Data on over 600 different goods and services is used. 5 steps statistics canada follows: determine the basket y determine which prices are most important to the typical consumer. If the typical consumer buys more hot dogs than hamburgers, then hotdogs should be given a greater weight in measuring the cost of living. Price of basket of goods / services in current year. Cpi in year 2 cpi in year 1.

Related Questions

TRUE or FALSE?

1. When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

2. Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

3. When a new good is introduced, consumers have more variety from which to choose, and this, in turn, increases the cost of maintaining the same level of economic well-being.

4. The real interest rate is the interest rate corrected for inflation.

5. Like physical capital, human capital is a produced factor of production.

crimsonalligator541

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

When the consumer price index rises, the typical family:

a) has to spend more dollars to maintain the same standard of living.

b) can offset the effects of rising prices by saving more.

c) can spend fewer dollars to maintain the same standard of living.

d) finds that its standard of living is not affected.

pearchinchilla659

ECON 1BB3 Chapter 6: Chapter 6 - Measuring the cost of living

ECON 1BB3 Full Course Notes

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