Chapter 24 Key Terms Flashcards
(16 cards)
Consumer price index CPI
The ration of the value of the fixed basket purchased by the typical consumer to the basket’s value in the base year multiplied by 100
Inflation rate
The percentage change in price index
GDP deflator
The ratio of nominal GDP to real GDP multiplied by 100
Basket (of goods and services)
The quantities of each items purchased by the typical consumer
Base year
The benchmark year against which other years are compared
Bureau of labor statistics
The government agency responsible for tracking prices
Producer price index
The ratio of the value of a fixed basket of goods and services purchased by firms to the basket’s value in the base year multiplied by 100
Cost of living
The income necessary to maintain a constant standard of living
Standard of living
Material well-being
Substitution bias
The inability of the CPI to account for consumer’s substitution toward relatively cheaper goods and services
Nominal GDP
Output valued at current prices
Real GDP
Output valued at base-year prices
Indexed contract
A contract that requires that a dollar amount be automatically corrected for inflation
Cost-of-living (COLA)
An automatic increase in income in order to maintain a constant standard of living
Nominal interest rate
The interest rate uncorrected for the effects of inflation
Real interest rate
The interest rate corrected for the effects of inflation
