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7 Cards in this Set
- Front
- Back
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inflation
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-sustained increase in the overall price of the economy
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purchasing power of money
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-as your income stays the same but a price of a good goes up, then your purchasing power falls
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Consumer price index (CPI)
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-measures the consumers typical cost of living
-reported by bureau of labor statistics |
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How to find CPI
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-Fix the basket
-Find the prices -Compute the cost |
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how to calculate CPI
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100 X (current year/ base year)
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Computing inflation rate
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(CPI this year- last year) / CPI last year X 100
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problems with CPI
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-substitution bias
-the CPI basket does not take into account the substitution bias, introduction of new goods, or unmeasured quality change because it uses a fixed basket |
