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econ week 6

by: Evelin Notetaker

econ week 6 Econ 2305- Microeconomic Principles

Evelin Notetaker
GPA 2.5
Econ 2305
William Alexander

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About this Document

These notes are over chapter 11 which is over measuring standards of living. It also has introduction to chapter 12 economic growth.
Econ 2305
William Alexander
Class Notes
CPI PPI inflation
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This 3 page Class Notes was uploaded by Evelin Notetaker on Monday October 12, 2015. The Class Notes belongs to Econ 2305- Microeconomic Principles at University of Houston taught by William Alexander in Summer 2015. Since its upload, it has received 36 views. For similar materials see Econ 2305 in Economcs at University of Houston.


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Date Created: 10/12/15
Econ 2305 Macroeconomics Week 6 Chapters 11 intro 12 Chapter 11 Measuring cost of living Consumer Price Index CPI I Measures overall cost of goods and services bought by consumers I Reported by the Bureau of Labor Statistics BLS prices of goods and services x 100 prices of base year In ation is the general increase in prices I A significant factor is increase of money supply In ation rate is the percent change in prices from previous year CPI year 2 CPI year 1 I Inflation year 2 x 100 CPI year 1 Housing is greatest consumer spending Producer Price Index PPI I Costs of goods and services bought by firms I Useful for predicting future CPI I Also calculated by BLS Three main problems with CPI I Substitution bias I Introduction of new goods I Unmeasured quality change Substitution bias each year there is not necessarily proportional change I Some prices rise more than others I Consumer substitute toward less expensive alternative I This causes overstate of living Introduction of new goods I Introducing new goods allow more variety I With greater variety value of dollar increases Unmeasured quality change I Quality can rise or fall GDP de ator accounts for the difference nominal to real GDP de ator vs CPI I GDP de ator based on domestics good I CPI based on all goods and services bought by consumer I CPI based on fixed basket I GDP de ator based on currently produced goods and services Cost of living allowance COLA I Include partial or complete indexation I Automatically raises wages when CPI rises Purchasing power is the amount of goods and services able to buy Real interest rates nominal in ation Chapter 12 Production and Growth Nation s standard of living based on workers productivity Differences in growth rates between countries I Some countries grow faster than others I No guarantee that rich countries will stay rich Higher productivity leads to higher economic growth


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