Ch11 Measuring the cost of living - tài liệu tham khảo | Đài học Hoa Sen

N. GREGORY MANKIW NINTH EDITION PRINCIPLES OF MACRO ECONOMICS CHAPTER Measuring the Cost of Living
Interactive PowerPoint Slides by: V. Andreea Chiritescu Eastern Illinois University
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license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1 IN THIS CHAPTER
• What is the Consumer Price Index (CPI)?
How is it calculated? What’s it used for?
• What are the problems with the CPI? How serious are they?
• How does the CPI differ from the GDP deflator?
• How can we use the CPI to compare dollar
amounts from different years? Why would we want to do this, anyway?
• How can we correct interest rates for inflation?
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license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. The Consumer Price Index • Consumer price index (CPI)
– Measure of the overall cost of goods and
services bought by a typical consumer
– Monitor changes in the cost of living over time • Core CPI
– A measure of the overall cost of consumer
goods and services excluding food and energy • Producer price index (PPI)
– A measure of the cost of a basket of goods and services bought by firms
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How the CPI Is Calculated – 1 1. Fix the basket
– The Bureau of Labor Statistics (BLS) surveys
consumers to determine what’s in the typical
consumer’s “shopping basket.” 2. Find the prices
– The BLS collects data on the prices of all the goods in the basket. 3. Compute the basket’s cost
– Use the prices to compute the total cost of the basket.
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How the CPI Is Calculated – 2
4. Chose a base year and compute the CPI
• Designate a year as base year (benchmark)
CPI = [Basket’s cost in current year / Basket’s cost in base year] × 100 5. Compute the inflation rate
• Percentage change in the CPI from the preceding period CPI this year−CPI last year Inflation rate CPI last year
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EXAMPLE 1: Market basket: 10 pizzas, 5 shirts Price of Price of year Cost of basket pizza shirts 2017 $12 $18 2018 $14 $20 2019 $16 $22
Compute CPI in each year (2017 base year) 2017: 2018: 2019:
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The typical basket of goods and services
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Active Learning 1: Calculate CPI & inflation rate CPI basket: Price of Price of year 10 lbs of beef, beef chicken 2017 $3 $3 20 lbs of chicken 2018 $4 $4 Base year: 2017 2019 $8 $5 A. Calculate CPI for all years
B. What was the inflation rate from 2018- 2019?
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Active Learning 2: A new basket, CPI & inflation rate New CPI basket for 2019: Price of Price of year 5 lbs of beef, beef chicken 2017 $3 $3 25 lbs o f chicken 2018 $4 $4 Base year: 2017 2019 $8 $5
A. Calculate cost of the new basket for 2019 and the CPI for 2019.
B. What’s the new inflation rate from 2018- 2019?
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license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Problems with the CPI – 1 • Substitution Bias
– Over time, some prices rise faster than others
– Consumers substitute toward goods that
become relatively cheaper, mitigating the effects of price increases.
– The CPI misses this substitution because it uses a fixed basket of goods.
– Thus, the CPI overstates increases in the cost of living.
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license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.