Class_Nov12_2013_Lec22_ISE460(1)(1)

Class_Nov12_2013_Lec22_ISE460(1)(1) - Lecture No 22 Chapter...

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Lecture’No.’22’ Chapter’11’
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Infla%on’Terminology’-’I’ ± Producer’Price’Index :’ a’sta%s%cal’measure’of’industrial’price’change,’ compiled’monthly’by’the’Bureau’of’Labor’Sta%s%cs,’U.S.’Department’of’ Labor’ ± Consumer’Price’Index :’ a’sta%s%cal’measure’of’change,’over’%me,’of’ the’prices’of’goods’and’services’in’major’expenditure’groups—such’as’food,’ housing,’apparel,’transporta%on,’and’medical’care—typically’purchased’by’ urban’consumers ± Average’Infla%on’Rate’ ( f ):’ a’single’average’rate’that’accounts’for’ the’eFect’of’varying’yearly’infla%on’rates’over’a’period’of’several’years.’ ± General’Infla%on’Rate’ ( f ’):’ the’average’infla%on’rate’calculated’ based’on’the’CPI’for’all’items’in’the’market’basket.’
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Consumer’ Price’Index’ Consumer’Price’Index (CPI):’the’CPI’compares’ the’cost’of’a’sample’ “market’basket ”’of’ ’goods’and’services’in’a’ speciFc’period’rela%ve’to’ ’the’cost’of’the’same’ “market’basket”’in’an’ earlier’reference’period.’ This’reference’period’is’ designated’as’the’ base’ period. ± CPI’(Old’measure)’–’Base’Period’=’ 1967’ ± 1967’100’ ± 2010’649.10’(January)’ ± CPI’(New’measure)’–’Base’Period’ (1982-84)’ ± 1982-84’100’ ± 2010’216.68’(January)’
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Selected’Price’Indexes’(Index’for’Base’Year’=’ 100,’Calendar’Month’=’April)’
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Average’Infla%on’ Rate’( f )’ Fact: q Base’Price’=’$100’ (year’0)’ q Infla%on’rate’(year’1)’ =’4±’ q Infla%on’rate’(year’2)’ =’8±’ Find: ’Average’infla%on’rate’ over’2’years?’ ± Step’1 : ’Find’the’actual’inflated’price’at’the’end’ of’year’2.’ ’ ’ $100’(’1’+’0.04)’(’1’+’0.08)’=’$112.32’ ± Step’2 : ’Find’the’average’infla%on’rate’by’solving the’following’equivalence’equa%on.’ $100’(’1+’ f ) 2 ’=’$112.32’ ’ ’ f ’=’5.98±’ $100 $112.32 0 1 2
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Example’11.1’
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Class_Nov12_2013_Lec22_ISE460(1)(1) - Lecture No 22 Chapter...

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