Macro ch11 Flashcards
Consumer price index (CPI) ??
a measure of the overall cost of the goods and
services bought by a typical consumer; a way to measure inflation
core cpi?
a measure of the overall cost of the goods and services bought by a
typical consumer excluding food and energy
Producer price index (PPI)
a measure of the cost of a basket of goods and
services bought by firms instead of consumers
Problems with CPI
Only measures private goods and services
Doesn’t include other factors like environment quality, homeland security, life
expectancy, crime rates, etc.
Tends to overstate inflation
Product substitution
Quality improvements
Introduction of new products
Data is typically 3-5 years old
is The GDP deflator is a broader measurement than the CPI TRue or false?
True
what is cpi
CPI fixed basket of goods and services bought by consumers
what is gdp deflator
basket of all goods and services produced domestically
What does cpi include ?
CPI includes imported consumer goods while the GDP deflator excludes them
does gdp deflator include imported consumer goods?
No
What does CpI exclude?
CPI excludes capital goods while the GDP deflator includes them if domestically
produced
what is indexation
Indexation
A dollar amount is indexed for inflation if it is automatically corrected for inflation
by law or in a contract
what is COLA?
COLA cost of living adjustments
Disinflation?
Disinflation reduction in the rate of inflation (slowdown of inflation
Deflation?
decline in overall prices (opposite of inflation)
TRue or false As inflation rises, the purchasing power of the dollar decreases.
true
Nominal interest rate ?
Nominal interest rate interest rate that measures the change in dollar amounts
Doesn’t correct for inflation
Measures the rate of growth in the dollar value of a deposit or deb
Real interest rate
Real interest rate interest rate that is corrected for inflation
Corrects for inflation
Measures the rate of growth in the purchasing power of a deposit or deb
