Chapter 6 Flashcards

1
Q

What does the Consumer Price Index (CPI) measure?

A

the overall cost of goods and services bought by typical consumers/households (cost of living)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Is CPI a good indicator for cost of living?

A

No, the ‘basket’ does not accurately reflect the changes in consumer behavior/preferences, consumer may choice to purchase items outside the ‘basket’ since they are cheaper

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is substitution bias when calculating CPI?

A

Purchases made outside the ‘basket’ are not considered since the ‘basket’ items stay constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

CPI vs GDP deflator, how would you describe them, distinctions, similarities?

A

CPI: measures prices of goods and services purchased by typical consumers

GDP: same as CPI measure but includes government business and foreigners

Both: measure prices over time using a basket model (GDP deflator changes yearly)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

List use of CPI

A

Adjust past values to current values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly