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12 Cards in this Set
- Front
- Back
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Inflation |
Is a general and ongoing rise in the level of price in an entire economy |
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Relative price change |
Occurs when you see the tuition price went up but the price of laptops has gone down. |
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The annual rate of inflation calculation |
{(level in New year -- level in past year) / level in past year} *100 = % change |
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Converting basket goods to an index |
(any year / the base year) * 100 = index % |
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Consumer Price index (CPI) |
Is based on the prices in a fixed basket of goods and services that represents the purchases of the average family of 4 |
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Substitution bias |
The rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living. Because it does NOT account for the consumer subsidizing away from the more expensive good |
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The quality/new goods bias |
means that the rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, because it does not account for the improvements in the quality of existing goods or the invention of new goods improves the standard of living. |
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Core inflation index |
By taking the CPI and excluding volatile economic variables, and this way, economist have a better sense of the underlying trends in prices that affect the cost of living |
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Producer Price index (PPI) |
Based on prices paid for supplies and inputs by producers of goods and services. /// Telling if going inflation or deflation |
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Internal Price index (IPI) |
Based on the prices of merchandise that is exported or imported |
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Employment cost index |
Measures wage of inflation in the labor market |
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GDP deflator index |
Is the index that includes all the GDP components consumption + investment + government + ( exports - imports) = ANSWER /// and is all the final goods and services produced within a year's border. This is recalculated every year. |
