New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Chapter 6 notes

by: Henry Notetaker

Chapter 6 notes ECON 2133

Henry Notetaker
GPA 2.89
Nehad Elsawaf

Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Goes over chapter six touched on in class. Goes over the CPI and it's components as well as whats wrong with it and how it compares and contrasts to the GDP-Deflator
Nehad Elsawaf
Class Notes
25 ?




Popular in Macroeconomics

Popular in Economcs

This 4 page Class Notes was uploaded by Henry Notetaker on Monday March 14, 2016. The Class Notes belongs to ECON 2133 at East Carolina University taught by Nehad Elsawaf in Spring 2016. Since its upload, it has received 151 views. For similar materials see Macroeconomics in Economcs at East Carolina University.


Reviews for Chapter 6 notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 03/14/16
Chapter 6 Measuring Cost of Living CPI Important Point Take a look Important Formula CPI Consumer Price Index Why The most common measure of in ation The government uses this number to derive the Cost of Living Adjustments COLA Measures 1 CPI Most Common consumer goods MOST USED 2 Producers Price Index Wholesale price Index capital goods 3 Cone In ation Index CPI without spending on energy food volatile 4 The GDPDe ator THE BEST a Important measure of in ation b Measures the typical consumer39s cost of living c i Used in contracts and Social Security d Published by US Bureau of Labor and Statistics 1Fix the quotbasketquot Most expensive and time consuming expensive step aBLS surveys consumers to determine typical GampS you buy and quantity 2Find the Prices Average Price aThe BLS collects data or the prices of all the goods in the basket 3Compute the baskets cost aUse the prices to compute the total cost PxQ 4Use a base year and compute the index aThe CPI in any year equals i 5Compute the In ation Rate aThe percentage change in the CPI from the preceding period ll EXPAMLE Basket 4 Pizzas10 Lattes Year of Pizzas of Lattes Cost of Basket 2007 10 200 10X4 2X1060 2008 11 250 11X4 25X2069 2009 12 300 12X4 3X1078 a Compute CPI in each year using 2007 base year i 2007 100x6060 100 ii 2008 100x6960 115 iii 2009 100x6060 130 b In ation Rate i 07 08 115100100x100 15 ii 08 09 130115115x100 13 Ill Problems with CPI Substitution Bias c The CPI misses this substitution because it uses a xed basket of goods d Thus CPI overstates increases in the cost of living IV Problems with CPI Introduction of New Goods b Dollars become more valuable c CPI miss this due to it using a FIXED basket of goods d Thus CPI overstates increases in the cost of living V Problems with CPI Unmeasured Quality Change a b BLS tries to account for quality changes but probably misses some as quality is hard to measure c Thus CPI overstates increases in the Cost of Living VI What Do these Problems Mean a Cause the CPI to overstate cost of living increases c Important because Social Security and many contracts have COLA s tied to the CPI VII Contrasting the CPI and GDP De ator a Imported Consumer goods i Included in CPI ii Excluded from GDPD b Capital Goods i Excluded from CPI ii Included in GDPD if produced domestically c The Basket i CPI uses xed basket ii GDPD uses basket of currently produced GampS 1this matters if different prices are changing by different amounts VIII Correcting Variables for In ation Comparing Dollar Figures from Diff Times a b Example Minimum Wage i 115 in Dec 1964 ii 585 in Dec 2007 c Did min wage have more purchasing power in 1964 or 2007 d To compare use CPI to convert 1964 gure into today s dollars e From Example i Year T 121964 today 122007 ii Min wage 115 in yearT iii CPI 313 in year T CPI 2117 today f 115 x 2117313 778 minimum wage in 1964 in todays doars IX Correcting Variables for In ation Indexation b For example Increase in the CPI automatically determines i The COLA in many multiyear abor contracts ii The adjustments in Social Security payments and federal income tax brackets X Correcting Variables for In ation Real vs Nominal Interest Rates a Nominal Interest Rate i Interest Rate not corrected for In ation ii Rate of growth in the dollar value of a deposit or debt b Real Interest Rate i Correct for In ation ii Rate of growth in the purchasing power of a deposit or debt c Calculating Rea Interest Rates i XI EXAMPLE Deposit is 1000 for one year a Nominal Interest is 9 b During the year in ation is 35 c Real interest rate i NIR IR ii 90 35 55


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Kyle Maynard Purdue

"When you're taking detailed notes and trying to help everyone else out in the class, it really helps you learn and understand the I made $280 on my first study guide!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.