So you can say that consumer prices rose since the base period which is in the early 80s (100 back then). Prices are two and a half times as high. ● Inflation rate of this aka the percent change in the CPI new-old/old * 100 ○ 2.1% over the last year. The fed is meeting its goal since their goal is 2% inflation a year. The other part of mandate is maximum employment and low unemployment ● Current CPI is 243 which is at the top ● Question : consumers __ see deflation since 1970 while the economy as a whole ____/ ○ Deflation for consumers- or price index- if you look at the graph you don’t see a huge period of price decrease, but during the great recession it did fall. ○ But measuring the economy as a whole, you would use the GDP deflator
● The red is inflation of the graph right before this and when you have deflation that is falling prices so negative inflation is seen, you can see at 2010 the negative inflation (price falling 2.19 to 2.11 CPI during great recession) ○ Answer - did, did not ● Core rate of inflation ○ Food and energy prices- quite volatile ■ They move up and down a lot ■ Maybe because of droughts, oil and natural gas drilling (Fracking) is failing and events overseas ○ The “core rate” measures inflation without food & energy prices ■ Gives a more accurate/ underlying rate of inflation ○ Regular or “headline” CPI includes food and energy prices
● In general inflation is at a steady rate ● Jump in CPI in 2010 is due to overseas ● In the last 12 months, the CPI went up about 2% ○ Red is core CPI percent change ○ Blue is CPI percent change 2.1 GDP deflator vs. the CPI ● Both measure price levels ○ With index numbers that aren’t dollar amounts ○ For consumers- CPI ○ For whole economy- GDP Deflator ● Extensive Overlap with them ○ Consumption © is 69% of GDP, so a lot of what happens in GDP is from CPI ● Move in similar ways but are weighed different ● Over the last year, inflation of GDP deflator = 1.3% ○ Inflation of CPI= rise 2.1% ■ This is prob the biggest different between them ● Different values ○ 112(GDP- 2009 is base year) vs 243.0(CPI- early 1980’s is the base year) ● They are constructed in different ways ○ Use? CPI for consumers, entire economy GDP ● Question- Say that inflation fell. THen the price level (measured by the CPI or GDP deflation) would be sure to fall as well.
○ Let’s say inflation fell from 4% → 2% ■ CPI: 100 → 104 → 106 ○ Answer- false - just because inflation is falling doesn’t mean that prices are changing ○ Falling inflation is different then a fall in prices… disinflation ○ Deflation- CPI decline (100 → 98) ● END ○ Question- On average, parents of Penn state students earn about $100,000 say that in 2047 you earn $200,000. Is this enough to say that in a material sense that you'll be better off than them?
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