W1P2 - NotebookLM Flashcards
Name three common measures of inflation.
Consumer Price Index (CPI), Consumer Price Index including owner occupiers’ housing costs (CPIH), and GDP deflator.
What does CPI track?
A broad basket of goods consumed by households in the UK, monitoring price changes over time relative to a base year.
What is CPIH?
An extension of the CPI that includes housing costs and is now the lead indicator in the UK.
What is the biggest component of CPIH?
Housing, accounting for about one-third of the total basket.
What is the GDP deflator?
The ratio of nominal GDP to real GDP, reflecting the price changes of everything within GDP, including exports but not imports.
How is inflation calculated?
As the change in price indices (CPI, CPIH, or GDP deflator) from one period to the next. The formula is: Inflation rate = ((PT - PT-1) / PT-1) * 100.
Why can the GDP deflator differ significantly from CPI/CPIH?
Due to its broader scope and inclusion of exports, as well as exclusion of imports.
Which type of GDP is preferred for business cycle analysis and why?
Real GDP, because nominal GDP can be inflated away by high levels of inflation, masking dips.
How is the GDP deflator derived?
From the ratio of nominal to real GDP.
What is GDP per capita used for?
To assess how rich an economy is in per capita terms.
What does the HP trend help identify?
The long-run trend in GDP, with deviations indicating output gaps or business cycle phases.
What does being below the trend line indicate?
Being below the trend value.
How do you calculate growth rate?
Growth rate = ((GDP in period t - GDP in period t-1) / GDP in period t-1) * 100.
What does plotting data in logs reveal?
More consistent growth rates over long periods.
What does the cycle component represent?
Deviations of actual output from its long-term trend, indicating booms and recessions.
What are credit volumes and house prices related to?
There is a trend in the literature concerned with the financial cycle.
What patterns do the cycle components of credit volumes and house prices show?
Similar patterns to the GDP cycle component.
