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