econlasttuesday - The term real means adjusted for...

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Unformatted text preview: The term real means adjusted for inflation (different than nominal) In constant dollars or in chained dollars (all being valued at one particular time= adjusted for inflation) CPI: Consumer Price Index: use a basket of goods from before to calculate the price: based of a previous bundled of goods CPI= Pc (qb)/ Pb (Qb)= 120/100= 1.2 (100)= 120 (1.2= operationa) (c=current / b=base) The base of the index system is always 100 BLS (Business of Labor Statistics) calculate the CPI To calculate inflation take 230-210/210 (Y1-Y0/Y0) Core CPI excludes energy and food to take out volatility: because theres a lot of volatility in energy prices as well as volatility Issue: tends to overstate the increases in the cost of living because 1) as time goes on, some goods increase in quality so the price increase may be an increase in price because of the new version 2) there is a relative price bias because between the base period and the current period, changes in price will lead to changes in quantity...
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This note was uploaded on 02/11/2012 for the course ECON 251 at USC.

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