TAILIEUCHUNG - Lecture Principles of economics - Chapter 16: Inflation and the price level

This is the second of three chapters on macroeconomic measurement. This chapter focuses on how economists measure the aggregate price level and the inflation rate, how these measures are applied to adjust dollar amounts to eliminate the effects of inflation, and how inflation and interest rates are related. | Inflation and the Price Level Chapter 16 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Explain how the consumer price index (CPI) is constructed and use it to calculate the inflation rate Show how the CPI is used to adjust dollar amounts to eliminate the effects of inflation Discuss the two most important biases in the CPI Distinguish between inflation and relative price changes to find the true costs of inflation Summarize the connections among inflation, nominal interest rates, and real interest rates Keeping up with Grandpa Prices of goods change over time Adjust values, incomes, or spending for change in prices Constant purchasing power Baseball salaries Bruce Lee earned US$500,000 in 1973 Jackie Chan earned US$15 million in 2007 Inflation increases uncertainty when planning for the future Consider costs of inflation 3 Measuring the Price Level The Consumer Price Index (CPI) is a measure of the cost of living during a

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