03_Lecture_Slides_with_Graphs

03_Lecture_Slides_with_Graphs - Economics 104 Fall 2010 1...

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Unformatted text preview: Economics 104 Fall 2010 1 Macroeconomics: Issues and Data Outline & Readings 1. An Overview of the Macroeconomy; chapter 4 2. Measuring Economic Activity; chapter 5 3. Measuring the Price Level and Inflation; chapter 6 Economics 104 Fall 2010 2 Macroeconomics: Issues and Data 3. Measuring the Price Level and Inflation Measuring the Price Level The price level in an economy is measured using a price index . A price index measures the average price of a set of goods/services relative to the average price of the same set of good in a base year. Most commonly: Consumer Price Index The CPI measures the cost of a standard basket of goods relative at a point in time relative to the base year. CPI = Expenditure on base year basket using current prices Expenditure on base year basket using base year prices 100 For this to be useful, the basket of goods must be relevant. 6 Statistics Canada - Catalogue No. 62-557-XPB Your Guide to the CPI The pricing cycle starts in the first week of each reference month and extends to the third week of the month. The indexes that result from this price collection activity represent the entire month. Some users ask for the index for a particular day of the month, like April 1, June 15 or December 31. This information is not available, and users have to decide which months index best meets their particular requirements. Most commodities are priced once a month. Some items, such as haircuts and dry-cleaning services are priced each quarter. Property taxes and tuition fees are monitored once a year. Generally, the more often prices change, the more often they are collected. In cases where goods appear on the market seasonally, prices are collected during the season when they are available. Also, when prices change outside the scheduled time of collection, a special price collection may be carried out to ensure that such changes are reported in the CPI in a timely fashion. Figure A 1992 CPI Weights by Major Component, for Canada, Expressed in Percentages Recreation, education & reading 10.4% Food 18.0% Shelter 27.9% Household operations & furnishings 10.0% Clothing & footwear 6.6% Transportation 18.3% Alcoholic beverages & tobacco products 4.5% Health & personal care 4.3% Economics 104 Fall 2010 3 Example In 2002 the base year, the consumption basket consists of: 10 units of consumption good 1 5 units of consumption good 2 20 units of consumption good 3 In the base year, the CPI index is normalised to 100....
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This note was uploaded on 01/28/2011 for the course ECON 104 taught by Professor Voss during the Winter '10 term at University of Victoria.

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03_Lecture_Slides_with_Graphs - Economics 104 Fall 2010 1...

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