ECO301831 - Amount of times a certain dollar is spent...

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ECO 301 8/31/11 CPI: Market basket approach to calculating CPI CPI=VMBt/VMBb Why the base year that they use? (1980) Not entirely clear but keeps numbers comparable Differences in GDP deflator and CPI inflation rates - Different group of goods and services - - base year vs current year weights Personal Consumption Expenditures Deflator less Food and Energy Velocity of Money Money supply * Velocity = Price (GDP deflator) * Q… output (Real GDP) Nominal = Price * Real
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Unformatted text preview: Amount of times a certain dollar is spent during a year Money growth +velocity growth Inflation= money growth-output growth + velocity growth Money growth faster than (output growth-velocity growth) will cause inflation Money growth is growth rate in M1 or M2 (M2 is better) (M) Inflation 0 Growth rate GDP deflator (P) Output growth 0Growth rate in Real GDP (Q) Velocity Growth Growth rate in P*Q/M...
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