Chapter 5 Flashcards
CPI downsides
Not all cities are measured in index; Rural areas are excluded; Substitution Effects; Subject to manipulation by government officials
Как ИПЦ работает?. Problems?
экономисты назначает басовый год на базе корзины товаров, на пример, энергетики, еды, рекреационных расходов как филмских билетов. ИПЦ этого года равно 100. Позле того, Показатели индекса рассчитиваются за каждый год на базе этой корзины и этого басового года. То, экономисты могут делать сравения между последовательнымы годами чтобы определить инфлацию между этими годами.
2021 ИПЦ: 271.0
2022 ИПЦ: 292.7
Инфлация в 2022 году= (292.7-271.0)/271.0=8.0%
Индекс стоимости жизни. Problems?
Используется такая же корзина товаров ИПЦ чтобы сравнить между этими географических местоположений в США. База равно 100, которая означает что это - национальную средину стоимости жизни в стране. С этой ссылкой, мы можем рассчитать индексы по многими местоположениям.
Например, В Нью-Йорке, Скажем что это-140. В Миссиссиппи, это-70.
Формула: (стоимость первого местоположения-стоимость другого местоположения)/100
(140-70)/100=.7=70
Если ты живешь в миссисипи, вам нужно заработать 70% больше зарплаты чтобы сохранить свой стандарт жизни если вы переехали бы в ню-йорк.
Дефлятор ВВП. Problems?
We have a base year for GDP which sets the prices for calculating real GDP.
Then, to calculate the difference in inflation between the years in question, we calculate for each year Nominal GDP/Real GDP*100
And then, we find the percentage difference.
Example: During the base year, Product Q had 10,000 production quantities and was priced at $5 each. Product P had 20,000 production quantities and was selling at $7 each.
The following year, Product Q had 9,750 production quantities but was priced higher at $8 each. Product P, on the other hand, increased in production to 22,000 and sold at $6 each. Find the GDP Deflator for the base and current years. Determine also the GDP Deflator Inflation Rate.
Base Year:
Nominal GDP: 10,0005+20,0007=190,000
Real GDP: 10,0005+20,0007=190,000
GDP Deflator: 190,000/190,000*100=100
Following Year:
Nominal GDP: 9,7508+22,0006=210,000
Real GDP:
9,7505+22,0007=202,750
GDP Deflator=210,000/202,750*100=103.6
103.6/100-1=3.6% inflation between the two years
преимущества и недостатки ВВП
It helps identify how much prices have inflated over a specific time period.
It allows comparison of prices of goods for different years.
It allows pinpointing the real reason for increases in GDP, whether inflation or increased output.
The disadvantage of using the GDP price deflator is it may be confusing and difficult for an average person to understand.
Почему экономисты предпочитают Дефлятор ВВП?
The GDP deflator is generally preferred over CPI when it comes to measuring inflation or price changes due to following reasons:
Not limited to consumer goods, it represents the country’s economy.
It can depict complex patterns in price changes, encompassing all non-consumer goods and services.
It is not based on a fixed basket of goods.
ВВП против ИПЦ
GDP deflator includes only domestic goods, while CPI includes anything bought by consumers, which includes non-domestic products (imported or foreign-made).
GDP deflator has a changing set of commodities while the CPI has a fixed basket of goods.
Substitution effect and CPI
- Some goods may be obsolete and CPI may not account for this in inflation calculations.
- If the price of a good goes up, consumers may not buy that good and may purchase a cheaper good not accounted for in the basket.
These can lead to overestimations.
Real wage
Nominal wage adjusted for CPI adjustments for a given year.
Used for comparison purposes to see if purchasing power of income is actually rising, declining, or constant
Real wage formula. Problems?
Real Wage in a year = (Nominal Wage in a Year/CPI in a Year)x100
A nominal salary of $40,000 in year one with a CPI of 100 may be compared to the following year’s nominal wage of $42,000 with a CPI of 110 by adjusting the nominal wage by inflation.
How much income would be needed to keep up with inflation?
To get the real wage for year 1: (40,000/100) x 100 = $40,000
To get the real wage for year 2: (42,000/110) x 100 = $38,182
The wage in year 2 after it has been adjusted by inflation shows a decrease in pay. If the real wage was not calculated and only the nominal wage was considered in year 2, it would seem that there was a pay increase of $2,000. However, the real wage is a decrease in pay and less purchasing power compared to year 1.
40,000/100*110=44,000
$44,000 is needed to keep up with inflation.
How to calculate how much income is needed in a specific year in comparison to a reference year to maintain purchasing power
Wage Purchasing Power in a chosen year = (Nominal wage in the reference year/ CPI in the reference year)(CPI in the selected year)
Antonio’s household earned $90,000 last year when the Consumer Price Index (CPI) was 110. If this year’s CPI is 125, what should Antonio’s household need to earn to match the purchasing power of the income last year?
Solution:
To get equal purchasing power, the second formula is utilized:
Equal purchasing power wage = (Nominal salary in year 1 / CPI in year 1) * CPI in year 2
(90,000/110)*125 = $102,273
Antonio’s household needs to earn $102.273 this year to match the purchasing power of last year’s.
Calculating Real GDP from Nominal GDP
Real GDP=Nominal GDP/Deflator
Economy has experienced only a 1% inflation rate since the base year. Nominal GDP is $100,000. What is real GDP?
100,000/1.01=99,009.9
