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MacroEcon Lecture Inflation

MacroEcon Lecture Inflation - October 10 Tuesday discussion...

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October 10: Tuesday discussion: two methods we discussed how we calculate price levels in economy CPI method: uses numbers Percentage rate: uses percentages Government overestimates inflation Basket in substitute commodities I. Overestimation of inflation: 2 nd reason: delays the introduction into the basket of new consumer technologies ex: 1990 cellphones came into the market came as a new commodity government should’ve taken the last commodity on the list (400 services in a list in order) and should’ve replaced it with the cellphone But the government didn’t do it for 8 years: the last commodity shouldn’t have been in there for 8 years Since the last commodity was there it raised the value of the price value 3 rd reason: government doesn’t monitor the quality improvements ex: 1980’s: two technological innovations in cars higher cost of production for the cars: so price would increase for cars since the price of cars rose the government saw it as inflation the price increase was justified
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