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by: Lela Moen


Lela Moen
GPA 3.81

Nevin Cavusoglu

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About this Document

Nevin Cavusoglu
Class Notes
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This 1 page Class Notes was uploaded by Lela Moen on Saturday September 26, 2015. The Class Notes belongs to GECON 200 at James Madison University taught by Nevin Cavusoglu in Fall. Since its upload, it has received 12 views. For similar materials see /class/214110/gecon-200-james-madison-university in General Education at James Madison University.




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Date Created: 09/26/15
Chapter 7 CPI Consumer Price Index EX 1983 P Q 2001 P Q Hamburgers 80 70 120 65 Jeans 2400 1 3000 1 Movie Tickes 500 4 700 3 Base 1983 CPI tracks the cost of a specific basket of goods over time CPI 2001 cost of basket in 2001 cost of basket in base year P2001Q1093 P1983Q1983 CPI 2001 142 100 CPI 2011 42 increase in cost of basket Inflation Rate pi CPIneWCPlold CP0d 100 CPI steeper when inflation rate is positive flatter when falling when inflation is negative CPI decrease If CPI increased then in that case the weighted average livel of prices rose CPI is opposite of Real GDP Use CPI to check inflation rate Bias in CPI New goods bias to find CPI for lap top compare it to typewriter in 1920 Substitution bias CPI does not allow substitution so if you switch products quantity would change Outlet substitution bias doesn t allow brand change Using a no brand namequantity would change Quality bias Indexing if your income is indexed with the CPI then it has to change when prices rise nominal wage this year CPI100nominal wage next year will keep purchasing power the same Deflating nominal wagCPI 100Real wage


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