01:220:103 Lecture Notes - Lecture 3: Producer Price Index, Gdp Deflator, Rate Equation

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bluecricket868

16 Sep 2016

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The percent change per year in a price index - typically the consumer price index. Refers to the annual percent change in the cpi. Measures the cost of the market basket of a typical urban american family. Intended to show how the costs of all purchases by a typical urban family has changed over time. American spend on what? three quarts of their income on food (15%), housing (41%), transportation (12%) and fuel (5%) Measures the changes in the price of goods purchased by producers. Typical basket of goods and services purchased by producers include mostly raw materials such as steel, coal, and electricity. The price index which measures the changes in the prices of all final goods produced by an economy. Equal to the nominal to real gdp ratio. Employment the total number of people currently employed in the economy, either full time or part time.

Related Questions

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

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 the 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 consumers.

Part I

Considering your household budget, divide up your spending into these eight broad categories:

Category	CPI Weight	Your Budget
Food and beverages	14.8
Housing	41.5
Apparel	3.6
Transportation	17.3
Medical Care	6.6
Recreation	6.3
Education & Communication	6.4
Other	3.5
Total	100	100

How closely does your household spending correlate to the typical consumer? How might your household be disproportionately affected by a change in one of these broad categories? Do you believe that the government's weightings are an accurate approximation for the whole economy?

yellowpanda707

1. The peak of the business cycle

a. usually occurs when the natural rate of unemployment is equal to its actual rate.

b. is the point where an expansion ends and a recession begins

c. is the minimum level of nominal GDP.

2. The consumer price index (CPI) reflects

a. the median annual expenditures of a typical single family of four on consumer goods

b. the average price of all goods and services computed from the ratio of nominal GDP to real GDP.

c. the changes in the prices of goods and services typically purchased by consumers.

3. The Consumer Price Index is NOT used

a. to measure the average price level of all final goods and services produced

b. to compute the U.S. inflation rate.

c. to measure changes in the cost of living

4. Which of the following is true of a price index that uses a fixed market basket?

a. It excludes new goods and services

b. It accurately predicts the impact of rising prices when purchases are made at superstores.

c. It overstates the importance of items that fall in price.

5. A quality-change bias in the construction of the CPI arises because

a. big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.

b. consumers also shop at superstores or outlet stores

c. newer versions of a product might be more expensive but could also be better than the older version.

greydeer734

01:220:103 Lecture Notes - Lecture 3: Producer Price Index, Gdp Deflator, Rate Equation

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