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Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
almost 4 years ago
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| Question | Answer |
| What is the difference between 'Deflation' and 'Disinflation'? | Disinflation = When inflation slows down temporarily. Deflation = A decrease in general price levels throughout an economy. |
| What are the two things measured by the Consumer Price Index (CPI)? | 1. The overall COST of a "basket" goods and service bought by a typical household. 2. The rate of PRICE CHANGE of goods and services purchased by households. |
| How are goods that are measured in the CPI weighted? | Depending on their importance in the household. E.g. caviar weighted low, milk & bread weighted high |
| The CPI is used as: (5) | 1. A measure of INFLATION 2. An indicator for monitoring ECONOMIC/MONETARY POLICY 3. The effect price change has on the PURCHASING POWER of households 4. Means to adjust BENEFITS, ALLOWANCES & INCOMES 5. As a PRICE DEFLATOR |
| Which commodity group of the CPI is prepared each month? | Food. |
| If you had two goods, how would you calculate the CPI? | Cost of Basket: (Price x Quantity) + (Price x Quantity) = A Other A/Base A x 1,000 = CPI |
| How do you work out the % change of the CPI? | (Final - Original/Original) x 100 |
| What are the uses for the CPI? (4) | 1. A measure of AGGREGATE PRICE LEVEL in the economy 2. Measure the change in the COST OF LIVING 3. Measure how much INCOME needs to RAISE to maintain a constant standard of living 4. Evaluate how much the STANDARD OF LIVING has eroded |
| What are some flaws of the CPI? (5) | 1. Not all price raise proportionately - some fall. 2. Consumers will substitute to other goods if price increases. 3. Inherently, the CPI will overstate increases in the cost of living. 4. Introduction of NEW GOODS - CPI doesn't know how to measure & it also takes a while for them to be introduced. 5. Unmeasured quality changes - these changes might make goods less/more desirable |
| What figure does the base year for CPI always have to be? | 1,000 |
| If you were told that minimum wage in 2000 was $7.70 and the CPI was 842.8 compared to a minimum wage of $14.75 and a CPI of 1,193 in 2014, who would be better off? | (7.70/842.8) x 1,000 = ... (14.75/1,193) x 1,000 = ... |
| What does 'r = R + pie' stand for? | Real Interest Rate = Nominal Interest Rate - Inflation Rate |
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