The Price is Right!
What is the CPI stands for?
Consumer Price Index
Name one stage in constructing the CPI.
Selecting the CPI basket
What is the bias caused by replacing old goods with new ones?
New Goods Bias
Value expressed in current dollars..
Nominal Value
Compares current year's prices to a previous year's prices.
GDP Deflator
Organization that calculates the CPI monthly.
Bureau of Labor Statistics
Goods and services in the index with their weights.
CPI Market Basket
Bias when consumers shop at discount stores.
Outlet Substitution Bias
Measures the reward and cost of labor.
Real Wage Rate
CPI focuses on this, while GDP deflator measures the overall economy.
Consumer Living Standard
Another name for the CPI.
Cost of Living Index
Three steps in calculating the CPI.
Find base period cost, find current period cost, calculate CPI
Two consequences of CPI bias.
Distorts private contracts, increases government outlays
Formula to calculate real wage.
Real Wage = (Nominal Wage ÷ CPI) × 100
Adjusts GDP for inflation to reflect the true value of goods and services.
Real DGP
Main measure of the cost of living.
CPI
Survey used to determine the market basket.
Consumer Expenditure Survey
Bias caused by improved quality of goods.
Quality Change Bias
Wage rate adjusted for inflation.
Real Wage Rate
Focus of the GDP deflator.
Economy Wide Calculations
CPI value in the reference base period.
100
Reason the same items are recorded monthly.
Measure Price Changes
Bias when consumers substitute cheaper goods.
Commodity Substitution Bias
Significant factor influencing how much labor firms hire.
Real Cost of Labor
Raw value of the economy without adjusting for inflation.
Nominal GDP