Chapter 11.

Chapter 11. - Chapter 11 Notes. If you want to look at the...

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Chapter 11 Notes. If you want to look at the price level of the goods and services that consumers buy, you use the CPI. o You don’t use this for producers—You would use the PPI. 70% of the stuff in the economy falls under consumption. Consumer Price Index: o A price index for consumers. o It’s measured differently; it uses a fixed basket of consumer goods and services. You never change what’s in the basket—You just look at what happens to the goods in the basket over time. o The basket includes imports, because buyers consume them. o The basket excludes exports. This is how it’s different from the GDP deflator. o The basket excludes government goods and services too. Consumers don’t buy tanks. o The basket excludes investments. Consumers don’t buy assembly lines. 1. Fix the basket. o What do consumers buy? o The BLS conducts something called the consumer expenditure survey. This is a monthly price survey. o Biggest expenditure: Housing. 2. Find the prices. o The BLS finds the prices. 3. Compute the basket costs. o One switches the price, one switches the quantity. o You use the quantity of your base year and let your prices vary.*** o Whereas the deflator uses base year prices.*** 4. Compute the CPI. o CPI of any year = basket of that year/cost of the basket of that year x 100. o
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Chapter 11. - Chapter 11 Notes. If you want to look at the...

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