Price Indices and Inflation - A price index computed each...

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Econ 4.3 Wednesday, February 17, 1999 Announcements: Homework Assignment #3 will be posted on the webpage. The Chapter 8 and 9 quizzes will be online soon. The next exam will be Friday, February 26th. Lecture notes: Price Indices and Inflation GDP = C + I + G + (EX-IM) = AD = AE Selected price comparisons General Price level and inflation Major Price indices Price Index Construction Real GDP, Price CHanges, Economic growth Inflation in the Economy Business Cycle Phases Types of Unemployment (cont'd) Seasonally Adjusted Unemployment Rate o Occurs every spring as College and High School students are let out o Raises the unemployment rate Inflation: a rise in the general price level Movements in price index indicate what his happening to prices Consumer Price Index:
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Unformatted text preview: A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer • Producer Price Index: Measures of prices that producers receive for products at all stages in the production process • Price Index = (Cost in Year 2 / Cost in Base Year) (100) • Purchasing Power of $1 in Year 2 compared to Purchasing Power of $1 in Year 1 • Value in Year 2 = (Purchase Cost in Year 1 / Purchase Cost in Year 2) (100) Unaticipated Inflation • Inflation Losers: o Luxury Item sellers o Consumers whose real income declined o Normal Goods sellers o Lenders with fixed interest rate contracts o Widows, orphans, retirees on fixed incomes...
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