Cost of living

Question 1

Cost of living

Answer 1

How much money people need to maintain standards of living in terms of the goods and services they can afford to buy.

Question 2

Price level

Answer 2

A snapshot of the prices of goods and services in an economy at a particular period of time.

Question 3

CPI

Answer 3

A measure of the overall prices of the goods and services bought by a typical consumer.

Question 4

Inflation rate

Answer 4

The percentage change in the price index from the preceding period.

Question 5

Producer price index

Answer 5

A measure of the prices of a basket of goods and services bought by firms.

Question 6

Problems with CPI

Answer 6

1. Substitution bias
2. Introduction of new goods
3. Unmeasured Quality Change
4. Relevance of CPI

Question 7

GDP VS CPI

Answer 7

GDP is for things produced, CPI is for things bought.

CPI compares prices of fixed basket of goods.

Question 8

Nominal interest rate

Answer 8

Interest rate usually reported without a correction for the effects of inflation.

Question 9

Real interest rate

Answer 9

The interest rate corrected for the effects of inflation.