Quiz 2 for Chapter 11 Flashcards
(17 cards)
Consumer Price Index (CPI)
A measure of the overall cost of the goods and services bought by a typical consumer-cost of living
How often is CPI
published?
Monthly and annually
Producer Price Index
(PPI)
A measure of the cost of a basket of goods and services bought by firms
Inflation Rate
The percentage change in the price index from the preceding period
Producer Price Index
A measure of the cost of a basket of goods and services bought by firms
Indexation
The automatic correction by law or contract of a dollar amount for the effects of inflation
Nominal Interest Rate
The interest rate as usually reported without a correction for the effects of inflation
Real Interest Rate
The interest rate corrected for the effects of inflation
How does the CPI reference a “basket of goods?
The consumer price index shows the cost of a basket of goods and services relative to the cost of the same basket in the base year.
How often does the CPl basket change?
Every 9-10 years
Do the GDP deflator and the CPI measure inflation in the same way?
No
If the CPl rises, what does that mean for a family’s spending?
When the CP| rises, the typical family has to spend more money to maintain the same standard of living
Which measure better reflects the goods and services bought by consumers?
The CPI better reflects the goods and services bought by consumers
What do economists call this time of overall price rising?
Inflation
What is the goal of the CPl in measuring the cost of living?
To gauge how much incomes must rise to maintain a constant standard of
Like the Consumer
Price Index, the GDP deflator measures the overall level of
prices in the economy
What happens to dollar value of money in the bank drawing
minimal interest when it is withdrawn following inflation?
Prices have risen while the money is in the bank, each dollar now buys less than it did before.
Even with the interest gained, the Purchasing Power of the dollar is lower.
