Chapter 7 Part 2 Price indexes_CPI and PCE.pdf - CHAPTER...

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7(22) C H A P T E R GDP and the CPI: Tracking the Macroeconomy
Back to Table of contents Measuring Prices Just as macroeconomists find it useful to have a single number representing the overall level of output in a given year (GDP), they also find it useful to have a single number representing the overall level of prices: the aggregate price level. Aggregate price level: a single number summarizing what was happening to consumer prices. A measure of the overall level of prices in the economy. How can we summarize the prices of all these goods and services with a single number? Price Index
Back to Table of contents PRICE INDEXES Price index in = Cost of market basket in a given year x 100 a given year Cost of market basket in base year Price Index : the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year You should note that the price index for the base year always results in a price index equal to 100. This is because the price index in the base year is equal to: (cost of market basket in base year/cost of market basket in base year) × 100 = 100.
Back to Table of contents PRICE INDEXES AND THE AGGREGATE PRICE LEVEL To measure the aggregate price level, economists calculate the cost of purchasing a market basket . Market basket: a hypothetical set of consumer purchases of goods and services. Economists track the typical basket of goods and services purchased before the price changes.
Back to Table of contents Let’s Look at 2 Price Indexes 1. Consumer Price Index (CPI) 2. Personal Consumption Expenditure (PCE)
Back to Table of contents Two Common Measure of Inflation are Indexes There are two common measures of inflation in the US today: 1. the Consumer Price Index (CPI) released by the Bureau of Labor Statistics, and 2.

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