inflation rate in year 2 = (CPI in year 2 - CPI in year 1) / (CPI in year 1) X 100
  • how to compute CPI
  • how to adjust dollar figures to current times
  • 3 problems in measuring cost of living
  • how to compute inflation using CPI
the interest rate corrected for the effects of inflation
  • how nominal and real interest rates and inflation are related
  • real interest rate
  • nominal interest rate
  • how to compute CPI
The first difference is that the GDP deflator reflects the prices of all goods and services produced domestically, whereas the consumer price index reflects the prices of all goods and services bought by consumers.
  • substitution bias
  • nominal interest rate
  • real interest rate
  • GDP deflator vs CPI
If the quality of a good deteriorates from one year to the next while its price remains the same, the value of a dollar falls, because you are getting a lesser good for the same amount of money. Similarly, if the quality rises from one year to the next, the value of a dollar rises.BLS does it best to adjust for quality change but sometimes cannot keep up
  • unmeasured quality change
  • introduction of new goods
  • Consumer Price Index (CPI)
  • producer price index (PPI)
the automatic correction by law or contract of a dollar amount for the effects of inflation
  • how to compute CPI
  • nominal interest rate
  • real interest rate
  • indexation
the interest rate as usually reported without a correction for the effects of inflation
  • nominal interest rate
  • real interest rate
  • how to compute CPI
  • how nominal and real interest rates and inflation are related
substitution biasintroduction of new goodsunmeasured quality change
  • how to adjust dollar figures to current times
  • producer price index (PPI)
  • 3 problems in measuring cost of living
  • how to compute inflation using CPI
is a measure of the overall cost of the goods and services bought by a typical consumer.Each month, the Bureau of Labor Statistics (BLS), which is part of the Department of Labor, computes and reports the consumer price index.
  • introduction of new goods
  • Consumer Price Index (CPI)
  • producer price index (PPI)
  • unmeasured quality change
When prices change from one year to the next, they do not all change proportionately: Some prices rise more than others. That is, consumers substitute toward goods that have become relatively less expensive. If a price index is computed assuming a fixed basket of goods, it ignores the possibility of consumer substitution and, therefore, overstates the increase in the cost of living from one year to the next.
  • substitution bias
  • introduction of new goods
  • real interest rate
  • how to compute CPI
amount in today's dollars = amount in year T dollars X (price level today) / (price level in year T)
  • how to compute inflation using CPI
  • how to compute CPI
  • how nominal and real interest rates and inflation are related
  • how to adjust dollar figures to current times
housingtransportationfood and beverage
  • how nominal and real interest rates and inflation are related
  • how to adjust dollar figures to current times
  • typical basket of goods and services in real world? (top 3)
  • 3 problems in measuring cost of living
When a new good is introduced, consumers have more variety from which to choose, and this in turn reduces the cost of maintaining the same level of economic well-being. Yet because the consumer price index is based on a fixed basket of goods and services, it does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
  • introduction of new goods
  • unmeasured quality change
  • Consumer Price Index (CPI)
  • substitution bias
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