Chapter 7.pdf - Macroeconomics Principles Applications 6 th edition Hall Lieberman Chapter 7 The Price Level and Inflation 1 Measuring the Price Level

Chapter 7.pdf - Macroeconomics Principles Applications 6 th...

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Macroeconomics. Principles & Applications, 6 th edition Hall & Lieberman 23 Chapter 7: The Price Level and Inflation 1. Measuring the Price Level and Inflation Index Numbers in General The Consumer Price Index Which Items to Include How Much Weight for Each One From Price Index to Inflation Rate: 2. How the CPI is Used As a Policy Target To Index Payment To translate from Nominal to Real Values 3. The Cost of Inflation The Myth of Inflation The Redistributive Cost of Inflation The Resource Cost of Inflation 4. Is the CPI Accurate Sources of the Bias in the CPI: Substitution bias: when P we buy cheaper substitutes New technologies: the CPI excludes new products that tend to drop in price when they first come on the market (example: cell phones) Changes in quality: better quality means that we get more, so the in P reflects this fact and it is not inflation Growth in discounting Consequences of the CPI Bias
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Macroeconomics. Principles & Applications, 6 th edition Hall & Lieberman 24 1. Measuring the Price Level and Inflation Index Numbers in General ≫ 𝑖???? ?????? = 𝑉???? ?? ???𝑖???? 𝑖? ??????? ???𝑖?? 𝑉???? ?? ???𝑖???? 𝑖? ???? ???𝑖?? × 100 Index numbers are a series of numbers used to track a variable’s rise of fall over time . Example: the Consumer Price Index. The CPI is calculated by the BLS and is designed to track the prices paid by the typical consumer over time. The CPI is calculated as: 𝐶𝑃𝐼 = 𝐶??? ?? ?????? ?? ????? ??? ????𝑖??? ????ℎ? ?? ?ℎ? ??????? ???????? (????𝑒?? 𝑦𝑒??) 𝐶??? ?? ?????? ?? ????? ??? ????𝑖??? ????ℎ? ?? ?ℎ? ??????? ???????? (???𝑒 𝑦𝑒??) × 100 The Consumer Price Index 1. Which Items to Include o The CPI Includes: The part of GDP that consumers buy + Two other types of goods and services not included in GDP: Used goods (second-hand cars) Imported goods o The CPI does not include: Purchases made by businesses, the government, and other countries.
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