Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
8 Cards in this Set
- Front
- Back
|
Consumer Price Index(CPI) |
A measure of the overall cost of the goods and services bought by a typical consumer |
|
|
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 the 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 |
|
|
Three problems with CPI |
1)Substitution Bias- Prices change from one year to the next they do not all change proportionately 2. Introduction of New Goods- consumers have more variety from which to choose 3) Unmeasured Quality- Quality of a good deteriorates from one year to the next while its price remains the same.
|
|
|
Equation for Real interest rate is |
Real interest rate= Nominal rate - inflation rate |
