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7 Cards in this Set

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What is the CPI?
This is a measure of the overall cost of the goods and services bought by a typical consumer.
How is the CPI computed?
1. Fix the basket.
2. Find the prices.
3. Compute the basket's cost.
4. Choose a base year and compute the index.
How is inflation computed?
Inflation is the year over year percentage increase in the CPI.
What organization computes the CPI?
The Bureau of Labor Statistics.
What problems with the CPI make it a less than perfect measure of cost of living?
1. Substitution Bias
2. Introduction of new goods.
3. Unmeasured quality change.
What is indexation?
Indexation is the adjustment of a dollar amount for inflation.
What is the difference between real and nominal interest rate?
Real interest rate is nominal interest rate minus inflation.