Chapter 11 Powerpoint

Chapter 11 Powerpoint - Measuring the Cost of Living CPI...

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Measuring the Cost of Living CPI GDP deflator Inflation Chapter 11
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Measuring temperature using Index Boiling water (212 F) Current temperature (80 F) Freezing water (32 F) Temperature is an index of hotness of air
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The Consumer Price Index The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer. The Bureau of Labor Statistics reports the CPI each month. It is used to monitor changes in the cost of living over time.
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The Consumer Price Index When the CPI rises, the typical family has to spend more dollars to maintain the same standard of living.
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How the Consumer Price Index Is Calculated Fix the Basket : Determine what prices are most important to the typical consumer. (What G&S? and How many G&S? example) The Bureau of Labor Statistics (BLS) identifies a market basket of goods and services the typical consumer buys. The BLS conducts monthly consumer surveys to set the weights for the prices of those goods and services.
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How the Consumer Price Index Is Calculated Find the Prices: Find the prices of each of the goods and services in the basket for each point in time (every month like September 2006).
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How the Consumer Price Index Is Calculated Compute the Basket’s Cost: Use the data on prices to calculate the cost of the basket of goods and services at different times. for each G&S, P*Q and then add up for all G&S.
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How the Consumer Price Index Is Calculated Choose a Base Year and Compute the Index: Designate one year (ex: 1990) as the base year, making it the benchmark against which other years (ex: 2006) are compared. Compute the index by dividing the cost of the basket in one year by the cost in the base year and multiplying by 100.
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9 What’s in the CPI’s Basket? 43% 17% 15% 6% 6% 6% 4% 3% Housing Transportation Medical care Recreation Education and communication Apparel Other
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Calculating the Consumer Price Index and the Inflation Rate: An Example Step 1:Survey Consumers to Determine a Fixed Basket of Goods 4 hot dogs, 2 hamburgers
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Calculating the Consumer Price Index and the Inflation Rate: An Example Year Price of Hot dogs Price of Hamburgers 2001 $1 $2 2002 $2 $3 2003 $3 $4 Step 2: Find the Price of Each Good in Each Year
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Calculating the Consumer Price Index and the Inflation Rate: An Example 2001 ($1 per hot dog x 4 hot dogs) + ($2 per hamburger x 2 hamburgers) = $8 2002 ($2 per hot dog x 4 hot dogs) + ($3 per hamburger x 2 hamburgers) = $14 2003 ($3 per hot dog x 4 hot dogs) + ($4 per hamburger x 2 hamburgers) = $20 Step 3: Compute the Cost of the Basket of Goods in Each Year
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Calculating the Consumer Price Index and the Inflation Rate: An Example
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Chapter 11 Powerpoint - Measuring the Cost of Living CPI...

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