GDP, Inflation, CPI

Question 1

Consumer Spending

Answer 1

58%

Question 2

Investment Spending

Answer 2

21%

Question 3

Government Spending

Answer 3

22%

Question 4

Exports

Answer 4

(other countries buying our goods and services) 33%

Question 5

Imports

Answer 5

(Canadians buy other countries goods and services) 34%

Question 6

Leaky bucket model
(flow of money)

Answer 6

consumer spending

Question 7

Leaky bucket model
(injections)

Answer 7

X-G-I
exports, government spending, investments

Question 8

Leaky bucket model
(leakages)

Answer 8

taxation, savings, imports

Question 9

What is inflation?

Answer 9

a general increase in the price of goods and services in an entire economy over time.

Question 10

Ultimately, a low inflation rate means prices don’t change very much or very quickly
In economics we call this

Answer 10

price stability. (remember one of our 7 key economic goals

Question 11

Opposite of inflation -

Answer 11

Deflation
its a general decline in prices across the economy over time.
falling demand-falling prices-debt defaults-bankruptcies-layoffs and wage reductions

Question 12

If the price of smarties in 2010 was $1 and the price in 2011 was 1.02, then inflation in our smarties only economy must have been

Answer 12

2%

Question 13

Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a measure that examines the …

Answer 13

weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

Question 14

Major groups in consumer price index

Answer 14

-housing
-apparel
-transportation
-education/communication
-other goods/services
-recreation
-medical care
-food breverages

Question 15

What does CPI tell us?

It tells us how much prices for
everyday items have…

We can compare CPI increases with …
If CPI has gone up by 10% over a 5 year period but average wages have only risen 5% we are actually relatively

Answer 15

The Cost of Living

gone up

wage increases to see our ability to afford every day items

poorer than we were 5 years ago.

Question 16

Nominal

Answer 16

does not account for inflation - Expressed in current dollars

Question 17

Real

Answer 17

• Accounts for inflation, so dollars are expressed in a base year dollars.

Question 18

Limitations to CPI
Consumption patterns
Its hard to compare the change in prices as consumers buy
Product quality -

Answer 18

change over time
different products
quality is not reflected in price.
CPI works as a carrot is still a carrot, but medicine has changed dramatically over the last 50 years