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Chapter17

# Chapter17 - Ch 17 Inflation and the Price Level Inflation...

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Ch. 17: Inflation and the Price Level Inflation makes it difficult to compare past and present. It also makes it difficult to do long-term planning. We will discuss how to measure the price level and inflation using the Consumer Price Index.

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I. Measuring the Price Level with the CPI CPI: Consumer Price Index -a measure of the average of the prices paid by urban consumers for a fixed “basket” of consumer goods and services - weight of each good in basket based on surveys of family expenditures - BLS checks prices of 80,000 goods and services each month

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Calculating the CPI Item 2000 2010 Rent – 2 bedroom apt \$1,000 \$1,500 Clothes - 5 outfits \$ 200 \$ 250 Food – fixed amount \$ 400 \$ 470 total \$1,600 \$2,220
II. Inflation – measures rate of change in average level of prices inflation rate = 100 x(CPI this year – CPI last year)/CPI last year CPI Nov. 2008 212.4 Nov. 2009 216.3 Nov. 2010 218.8

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Inflation (% change in CPI from year ago)
*food until June 1923, thereafter based on all items. These data were calculated

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Chapter17 - Ch 17 Inflation and the Price Level Inflation...

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