chpt 20

Question 1

what are some important price index

Answer 1

1. consumer price index and producer price index and the Dow Jones Avg

Question 2

What is the Consumer price Index (CPI)

Answer 2

1. published monthly by US Bureau of labour statistics
2. primary measure of the cost of living in the USA
3. consists of a market basket of 400 items including food, housing, clothing, transportation and medical items
4. a weighted avg price index with fixed weights
5. the weight applied to each item derives form a usagae survey of urban families throughout USA

Question 3

What is the Producer Price Index (PPI)

Answer 3

1. also published monthly by US Bureau of labour and statistics
2. measures the monthly changes in prices in primary markets in the USA
3. based on prices for the 1st transaction of each product in nonretail markets
4. all comodities sold in commercial transactions in these markets are represented
5. covers, raw manufactured and processed goods at each level of processing and includes the output o findustries classified as manufacturing, agriculture, forestry, fishing, mining, gas and electricity and public utlities

Question 4

what is a common use of the PPI

Answer 4

leading indicator of future trends of consumer prices and cost of living

Question 5

What does the Increase in PPI mean

Answer 5

reflects producer price increase that will eventually be passed on to consumers through higher prices

Question 6

What are the weights for the various items in PPI

Answer 6

based on value of shipments

- uses the Laspeyres method

Question 7

What is the Dow Jones Avgs

Answer 7

1. indexes designed to show price trends and movements associated with common stocks
2. best known dow jones index is - DOw Jones Industrial Avg (DJIA)

Question 8

What is the DJIA

Answer 8

1. based on commons stock prices of 30 larger co/s
2. • it is the sum of these stock prices /a number
3. the number is revised from time to time to adjust for stock splits and switching of cos in the index

Question 9

What are some other Dow Jones Avgs

Answer 9

1 computed for 20 transportation stocks and 15 utility stocks

Question 10

Where can you find Dow Jones Avgs

Answer 10

1. Wall street Journal

2. other financial publications

Question 11

What does it mean by deflating a series by price indexes

Answer 11

a total $ amount of inventory up by 10% might mean the physical inventory is 10% larger

• this could be misleading
• need to adjust the time series to eliminate the price change effect

Question 12

What is the definition of deflating the series

Answer 12

whenever we remove the price increase effect form a timeseries

Question 13

What are real wages or purchasing power of wages

Answer 13

based on deflating an hourly wage index

Question 14

What are real wages good for

Answer 14

are a better measure of purchasing power than actual wages

Question 15

What can you use to deflate Hourly wages

Answer 15

CPI

Question 16

What is another name for deflated series for wages

Answer 16

real wages

Question 17

what is the formula to deflate hourly wages

Answer 17

( hourly wage rate in each year / corresponding value of CPI ) x 100

Question 18

What does GDP stand for

Answer 18

Gross Domestic Product

Question 19

What is GDP

Answer 19

total value of all goods and services produced in a given country

Question 20

If GDP is not deflated by a price index what happens

Answer 20

overtime CDP will show gains that are in part due to price increases

Question 21

How do you calculate the price relatives for an item

Answer 21

(newest price per unit / newest price per unit) x 100