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# chapter6notes - Chapter 6 Measuring the Price Level and...

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Chapter 6: Measuring the Price Level and Inflation: h Inflation makes it hard to compare economic conditions over time h Real quantities – adjusted for inflation use these to compare economic conditions over time h Consumer Price Index (CPI) – type of price index; used to measure price level & inflation Cost of basket of goods in that time relative to cost in base year CPI measured by Bureau of Labor Statistics (BLS) [same group that does unemployment rate] CPI: cost of base-year basket of goods and services in CURRENT year cost of base-year basket of goods and services in BASE year Example: h Cost of base year basket of goods and services in 2000 (base year) : \$ 680 h Cost of base year basket of goods and services in 2005 : \$850 h \$850 = 1.25 \$680 h so cost of living in 2005 is 25% higher than it was in 2000 P Price Index- measure of avg price of a basket of goods and services relative to the price of the same basket of goods and services in base year h Inflation - how fast avg price level changes over time – percent change in price level Inflation: current – base (increase in price level) base P Deflation- when inflation is negative – prices are decreasing over time Example: early 1930’s – last time US had deflation

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chapter6notes - Chapter 6 Measuring the Price Level and...

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