ECON2105_Ch6

# ECON2105_Ch6 - PRICE LEVELS Many goods and services are...

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PRICE LEVELS Many goods and services are produced in the U.S. economy. Prices of these goods and services may increase, decrease, or stay the same. ____________________ allow us to monitor general trends in the prices of most goods and services. They allow us to monitor “the general price level.” Using price levels, we can find out if most prices in an economy are increasing or decreasing. We can also discuss the percentage change in general prices and compare percentage changes in prices over time. THREE PRICE INDEXES 1. _____________________________ (CPI) weighted average of some prices that urban consumers pay 2. _____________________________ (PPI) weighted average of some prices that firms pay for commodities 3. ______________________________ (where GDP is for gross domestic product) measures the prices of all goods produced in an economy INFLATION Percentage change in the price level between two periods. Copy down the formula from the transparency and the explanation of each term in the equation. Multiply by 100 to convert to a percentage. Example: Suppose P t = 200 and P t+1 = 205. Calculate the rate of inflation in period t+1 . Notice that if P t+1 > P t , then inflation in period t+1 > 0. What do we call the case where P t+1 < P t ? Has this happened often recently in the U.S.?

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The value of a dollar (in terms of the goods and services that one dollar can buy) has changed over time.
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