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# lec16 - CPI with base of 1983 MACROECONOMICS 1992 152.4...

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4 MACROECONOMICS Aggregate Output Employment General Price Level 7 Government Tools Fiscal Policy Taxes Government Spending Monetary Policy Interest rates 12 Consumer Price Index CPI gives cost of market bundle in each year relative to the base year. Example: Base year is 1983. Cost of market bundle in 1994: \$2568. Cost of market bundle in 1983: \$1733. CPI (1994) = 2568/1733 x 100 = 1.482 x 100 = 148.2 13 CPI with base of 1983 218.1 2010 214.5 2009 215.3 2008 207.3 2007 201.6 2006 195.3 2005 188.9 2004 184.0 2003 179.9 2002 177.1 2001 172.2 2000 166.6 1999 163.0 1998 160.5 1997 156.9 1996 152.4 1995 148.2 1994 144.5 1993 140.3 1992 14 Inflation = Change in CPI Inflation from 2005 to 2006: 201.6 – 195.3 6.3 = = 0.032 195.3 195.3 = 3.2% inflation 17 1. CPI in base year is 100. 2. Choice of base year doesn’t matter. 3. CPI overstates effects of price changes by holding market bundle constant.

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18 Inflation rate 1913-2010 -15 -10 -5 0 5 10 15 20 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 19 Producer Price Index Same as CPI but calculated for a market bundle of inputs to producers. 21 Measures of Aggregate Output Gross Domestic Product: Value of all final goods and services produced domestically. GDP in 2008: \$14.7 trillion 23 Nominal GDP: GDP in prices for that year.

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