2020 lesson 2 post

# 2020 lesson 2 post - Measuring the Cost of Living Price...

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(Cost of basket in current period ) Cost in base period Measuring the Cost of Living Price Index: a series of numbers that summarize what has happened to prices over time. I. Consumer Price Index (CPI) – compares the cost of a “basket” of g/s (based on the budget of a typical urban household) in different periods. CPI = x 100 A. Procedure 1. Fix the “basket” (BLS) 2. Find prices on the g/s – there are CPIs for many different cities and regions 3. Set a base year (current base year for US = 1983) Example: Q 1990 P Total Spent 2000 P Total Spent Meals Out 36 \$10 \$360 \$12 \$432 Beer 72 \$5 \$360 \$6 \$432 Movies 24 \$5 \$120 \$7 \$168 Cost of basket \$840 \$1,032 1990 Base Year CPI = (1032/840) x 100 = 122.857 B. Producer Price Indices (PPI): Measure the average change over time in the selling prices received by domestic producers for their product. C. Inflation: Upward movement in the price level. % change in the price index. Ex:

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## This note was uploaded on 02/27/2008 for the course ECON 2020 taught by Professor Kaplan,jul during the Spring '08 term at Colorado.

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2020 lesson 2 post - Measuring the Cost of Living Price...

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