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ECN 204 Chapter 6: Chapter 6.docx

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bluejackal172
14 Apr 2012
School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Christos Shiamptanis

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Document Summary

Inflation: a situation in which the economy"s overall price level is rising. Inflation rate: percentage change in the price level from previous period. Consumer price index (cpi): measure of the overall cost of the goods and services bought by a typical consumer. Use data on the prices of over 600 different goods and services. Which prices are most import to the typical consumer. Eg, buy more hot dogs than hamburgers, price of hot dogs is more important, given a greater weight. To know this give surveys: find the prices. Find the prices of each of the goods and services in the basket for each point in time: compute the basket"s cost. Basket is kept the same, isolating effect o price changes from the effect and any quantity changes that might be occurring at the same time. Multiply cost of the one item, and then by how many items there are. Then add all the items you have computed.

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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.

 

The consumer price index is used to:
 
(i) monitor changes in the level of wholesale prices in the economy.
(ii) monitor changes in the cost of living over time.
(iii) monitor changes in the level of real GDP over time.
(iv) monitor changes in the stock market.
 

Choose the correct answer for the below question-

Which one of the following statements is true of the Consumer Price Index?

A. It does not take into account the price of used goods.

B. It measures changes in prices in a fixed basket of goods.

C. It does not take account of the price of imported goods and services.

D. It understates the true rate of inflation. 

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