L11 Econ 1021 Chapter Notes - Chapter 5: Boskin Commission, Price Level, Core Inflation

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limebee41

1 Mar 2016

School

WUSTL

Department

University College - Economics

Course

L11 Econ 1021

Professor

Bandyopadhyay Sudeshna

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Document Summary

Real quantities quantities that are measure in dollars and then adjusted for inflation (ex: real gdp is gdp adjusted for inflation) Base-year basket: purchases they make in time period. Cpi = cost of base year basket of goods services current year cost of base year basket of goods services base year. Cpi for a given period measures the cost of living in that period relative to what it was in the base year. If cpi = 1. 25 then it means 25% higher cost of living than base-year. Doesn"t measure the price of a specific good/service. No unit of measurement (it is and index) The value of an index in a particular year has meaning only in comparison with the value. Used to assess economic trends such as indexes of raw materials to forecast changes in of that index in another year the prices of manufactured goods. Can be used to adjust economic data to eliminate the effects of inflation.

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?

greycoyote29

Consider an economy that produces and consumes bread and automobilies , In the following table are data for two different years

	YEAR 2000	YEAR 2000	YEAR 2010	YEAR 2010
GOOD	QUANTITY	PRICE	QUANTITY	PRICE
AUTOMOBILES	100	$50000	120	$60.000
BREAD	500.000	$10	400.000	$20

a)Using the year 2000 as the base year ,compute the following statistics for each year : nominal GDP ,real GDP ,the implicit price deflator for GDP ,and a fixed-weight price index such as the CPI

b)How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Paasche price indexes. Explain the difference

c) Supopose you are a senator writing a bill to index Social Sewcurity and federal pensions. That is ,yout bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why?

Three goods are consumed in an economy during years 1 and 2. The table shows prices (P1 and P2) for each good, and it shows the market basket that is used to calculate the consumer price index. The base year is year 1.

Good	P1	P2	Basket
Milk (gallons)	$4	$4.20	4
Chicken (pounds)	$5	$5.50	10
Onions (bags)	$2	$2.32	1

Enter numbers in each blank, rounded to two decimal places as necessary. The cost of the basket in year 1 is $____ and the cost of the basket in year 2 is $_____. The value of the CPI in year 1 is _____ and the value of the CPI in year 2 is ______. The inflation rate is equal to ______%.

turquoisesardine982

L11 Econ 1021 Chapter Notes - Chapter 5: Boskin Commission, Price Level, Core Inflation

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