TAILIEUCHUNG - Lecture Economics - Chapter 17: Inflation

In this chapter, students will be able to understand: Can an interest rate be negative? What is the inflation rate of your college education? Can a person’s income fall even though he or she received a raise? | Chapter 17 Inflation Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing * In this chapter, you will learn to solve these economic puzzles: What is the inflation rate of your college education? Can a person’s income fall even though he or she received a raise? Can an interest rate be negative? Does inflation harm everyone equally? * What is Inflation? An increase in the general (average) price level of goods and services in the economy * What is Deflation? A decrease in the general (average) price level of goods and services in the economy * What is the most widely reported measure of Inflation? The Consumer Price Index * What is the Consumer Price Index? The CPI is an index that measures changes in the average prices of consumer goods and services * Who reports the CPI? The Bureau of Labor Statistics (BLS) of the Department of Labor * How is the CPI calculated? Price collectors contact retail stores, homeowners, and tenants in selected cities in the . monthly * Which goods and services are included in the CPI? The BLS records average prices for a “market basket” of different items purchased by the typical urban family * Composition of the CPI Food and Beverages Housing Apparel and Upkeep Transportation Medical Care Recreation Education & Communication All other goods & services * Does the makeup of the CPI change? As people’s tastes and preferences change, some of the goods and services that go into the basket change * How is the CPI computed? Current year prices are compared to prices of a similar basket of goods and services in a base year * What is a Base Year? A year chosen as a reference point for comparison with some earlier or later year * Why is the CPI always 100 in the Base Year? The numerator and the denominator of the CPI formula are the same in the base year * CPI = CYP BYP *CYP = cost of the market basket of

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