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ECON1132 Lecture Notes - Lecture 15: Boskin Commission, Market Basket, Menu Cost

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apricotspider924
25 Mar 2015
School
Boston College
Department
Economics
Course
ECON1132
Professor
Harold Petersen

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Document Summary

Econ1132: principles of macroeconomics- lecture 15: inflation inflation: Definition: rising prices, or more precisely an increase in the general level of prices, as measured by a price index. Price index: a weighted average of prices expressed relative to a base year. Most commonly measure inflation with the consumer price index, or the cpi(reported monthly by the u. s. bureau of labor statistics (bls)) We measure inflation as the percentage change in the cpi, and inflation for the year is typically taken as the change from december to december. Core cpi excludes food and energy and is also reported each month. The core rate is usually taken as a better measure of underlying, or ongoing inflation. The cpi is intended to measure the cost of living for typical urban households relative to a base year. They enlist a group of people to keep detailed diaries of just how they spend their money over the course of a period of time.

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Related Questions

Measures of Inflation The GDP deflator is the broadest, most inclusive measure of change in the country's price level since it includes all final goods and services produced and sold. But the GDP deflator is not used by the government or economists as the benchmark measure of inflation; instead, the consumer price index (CPI) is used to determine changes in the cost of living. What is the shortcoming of the GDP deflator as a measure of inflation for households, and why is the CPI considered to be a more useful measure?

An advantage of the personal consumption expenditures price index (PCE) over the consumer price index (CPI) as a measure of inflation is that the PCE

A) includes the prices of consumer goods, but not consumer services.

B) includes the prices of consumer services, but not consumer goods.

C) includes the prices of more consumer goods and services.

D) is a fixed market-basket price index that does not allow the mix of products to change each year

1) Go to the CPI page of the Bureau of Labor Statistics at www.bls.gov/cpi

2) Scroll down to the section labeled CPI Databases.

3) Use the One Screen Data Search (green box) on CPI. All Urban Consumers. Select the U.S. City Average (box 1).

4) Choose All items (box 2) and Add to your Selection (box 4) AND choose any other good and Add to your Selection. (Select the Not Seasonally Adjusted Option only in box 3). Then select Get Data.

5) Use the annual data or select a month and calculate the rate of inflation for your good over a 1 or 5 year period. Calculate the rate of inflation for All items over the same period.

6) Explain whether your good has experienced a price increase or decrease relative to the prices of all other goods.