Inflation 1

Inflation 1 - PRINCIPLES OF MACROECONOMICS INFLATION Foster...

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PRINCIPLES OF MACROECONOMICS INFLATION Foster
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2 Why Measure Inflation? Important Economic Indicator and Policy Target Increases in inflation determine: the COLA in many multi-year labor contracts the adjustments in Social Security payments and federal income tax brackets
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What is Inflation? Inflation rate: the percentage increase in the overall price level over a given period of time, usually one year. Disinflation: a decline in the inflation rate – rising prices, but falling inflation – CPI went up, but by a smaller % than previous year. Deflation: a negative inflation rate; a decrease in the price level from period to period 3
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4 How Do We Measure Inflation? The Consumer Price Index (CPI) measures the typical consumer’s cost of living – All Urban Consumers Others: Core Inflation Rate – basket minus food and energy prices Producer Price Index – prices received by firms at all stages of production
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5 How the CPI Is Calculated 1. Fix the “basket.” The Bureau of Labor Statistics (BLS) surveys
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This note was uploaded on 02/28/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

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Inflation 1 - PRINCIPLES OF MACROECONOMICS INFLATION Foster...

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