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UK / Economics / ECON 202 / What is producer price index?

What is producer price index?

What is producer price index?

Description

School: University of Kentucky
Department: Economics
Course: Introductory Microeconomics
Professor: Gillette
Term: Spring 2016
Tags: ECON 202 Gillette UK
Cost: 25
Name: ECON 202 Ch. 9 Unemployment and Inflation
Description: Ch. 9 Unemployment and Inflation Packet Notes
Uploaded: 02/10/2016
10 Pages 213 Views 0 Unlocks
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Chapter 9If you want to learn more check out List the four ethical perspectives.

Unemployment and inflation

The percentage increase (change) in the price level from one year to the nextIf you want to learn more check out What is quotient rule?
If you want to learn more check out What is our most fundamental musical instrument?

Need a Price index to Measure the Price Level - average level of price

  • Consumer Price Index (CPI)
  • GDP deflator: measure of the price level calculated by dividing nominal GDP by real GDP and multiplying by 100. Includes all final goods and services
  • Producer Price Index: An average of the prices received by producers of goods and services at all stages of the production process
  • Personal Consumption Expenditure Price Index (PCE): measure of the price level that is similar to the GDP deflator, except in includes only the prices of goods from the consumption category of GDP

We also discuss several other topics like international business lecture notes

Consumer Price Index (CPI) measures average level of prices

  • A measure of the average change over time in the prices a typical urban family of four pays for the good and services they purchase
  • Cost - of - living index

Don't forget about the age old question of How your personality will develop?

CPI: Market Basket and CPI Formula

  • Market Basket Representative group of goods and services (211 different types) purchased by the typical urban family of four
  • An index comparing the cost of buying the market basket of goods and services in the current year to the cost of buying that same market basket in the base period

We also discuss several other topics like Why Study Financial Markets and Institutions?

Interpreting the Value of the CPI

  • The CPI is the cost of the market basket in a specific year as a percentage of the cost of the same market basket in the base year
  • A CPI of 110 indicates that the costs of the market basket is 110 percent of the base - year costs, or that the cost have increased 10 percent
  • Interpret: CPIdecember 2015 = 237; CPI1963 = 30.6
  • Base period is 82 - 84
  • The cost of living has increased 138%
  • CPI is not the same thing as inflation rate

Calculating the Inflation Rate

  • Briefly explain whether you agree or disagree with the following statement: “i don’t believe the government price statistics. The CPI for 2010 was 218, but i know that the inflation rate couldn’t have been as high as 118 percent in 2010”
  • Need CPI for 2009
  • The CPI in America is going up. We have experienced inflation, and deflation

Inflation Rate (1960 - 2015)

(Below Target Rate Now)

CPI Overstates The Cost of Living and Inflation Rate

  • Substitution Bias
  • Using a fixed market basket, the CPI assumes that consumers don't buy less of a good whose relative price risen and more of a good whose relative price falls
  • Increase in Quality Bias
  • Quality improvement of goods and services are not filtered out completely and show up as an increase in the cost of living (inflation)
  • Omit New Product Bias and Outlet Bias

Using Price Index to Adjust for the Effects of Inflation

  • Variables that are calculated in current - year prices are referred to as nominal variables
  • To account for the effects of inflation, divide the nominal variable by a price index and multiply by 100 to obtain a real variable. For example,
  • The real variable will be measured in dollars of the base year (referred to as constant dollars)
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