Chapter 6 Flashcards
1
Q
Consumer Price Index
A
Overall measure of the cost of the goods and services bought by a typical consumer
2
Q
Why is CPI not a perfect measure of cost of living
A
- Commodity substitution bias
- Introduction of new goods
- Unmeasured quality change
3
Q
Indexation
A
The automatic correction of a dollar amount for the effects of inflation by law or contract
4
Q
COLA
A
Automatically raises the wage when the CPI raises
5
Q
Nominal interest rate
A
Interest rate that is usually reported without a correction for the effects of inflation
6
Q
Real interest rate
A
interest rate that is corrected for the effects of inflation
