WEEK 14 Flashcards
What is CPI
The measure of the cost of living during a period
What does cpi measure to get its statistic
A standard basket of goods and services in a given year
Formula for cpi
CPI = current year / base year
CPI is always above what
ONE —– 1
CPI measures the change in what
Consumer prices
How to work out the rate of inflation
(Current year - base year) / Base year
what is a nominal quantity
When things are measured in terms of its current value
How to find real income
Nominal income / CPI
How to find real wage
Average wage / cpi
If wages are going up by a real % each year how do you find the wage
Times it by the raise %, then times it by CPI
When is there a tight labour market
Low level of unemployment and high level of job vacancies
What is CPI’s largest bias
Measures price change - Not quality change
What is the substitution bias in CPI
Customers are switching products to make it cheaper.
What is the GDP price deflator formula
(Nominal GDP / Real GDP) x 100
What does the GDP price deflator do
Measures the changes in prices for all of the goods and services produced in an economy
What is a price level
Measure of the overall level of prices at a point
What is relative prices
The price of a specific good or service in comparison to other goods - If inflation is 2% and bulbs raise by 1% then theres a relative decrease
What can relative prices do
Change markedly without changes in inflation
Products with high relative prices
Gas
Cruises
Holidays
Unexpected inflation does what
Redistributes wealth
What are menu prices
The costs of adjusting prices
What is the fisher equation finding
Real interest rate
What is the fisher equation
Real interest rate = nominal interest rate - inflation
What is the real interest rate
The annual percentage increase in the purchasing power of financial assets
Who does unexpected inflation help
Borrowers and hurts lenders
What are inflation-protected bonds
Pay a real rate of interest plus the inflation rate
What is the fisher effect
The tendency for nominal interest rates to be high when inflation is high and low when inflation is low
When gov increases spending what tends to happen
Increases demand for goods and servies
