ECON 2 Chapter Notes - Chapter 11: Nominal Interest Rate, Real Interest Rate, Gdp Deflator

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11. 1 the consumer price index consumer price index (cpi) is used to monitor changes in the cost of living over time inflation: economy"s overall price level is rising. (cpi rises) typical family has to spend more money to maintain the same standard of living inflation rate: percentage change in the price level from the previous period. 11. 1a how the cpi is calculated consumer price index (cpi): measure of the overall cost of the goods and services bought by a typical consumer fixed basket of goods. 11. 2 correcting economic variables for the effects of inflation. Purpose of measuring the overall level of prices in the economy is to allow us to compare dollar figures from different times. A price index such as the consumer price index measures the price level and thus determines the size of the inflation correction. Price indexes are used to correct for the effects of inflation when comparing dollar figures from different times.

Related Questions

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

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

The substitution bias in the consumer price index refers to the:

a. substitution by consumers toward new goods and away from old goods.

b. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.

c. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.

d. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

ECON 2 Chapter Notes - Chapter 11: Nominal Interest Rate, Real Interest Rate, Gdp Deflator

ECON 2 Full Course Notes

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