1、 2 REF: 24-0NAT: Analytic LOC: The study of economics and definitions of economicsTOP: CPI MSC: Interpretive2. When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living. T DIF:3. Economists use the term inflation to describe a situatio
2、n in which the economys overall price level is rising. 1 REF: Unemployment and inflation TOP: InflationMSC: Definitional4. The inflation rate is the absolute change in the price level from the previous period. Inflation rate5. Inflation can be measured using either the GDP deflator or the consumer p
3、rice index. Unemployment and inflation Inflation | CPI | GDP deflator MSC:6. The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index. Inflation rate | CPI | GDP deflator MSC:7. Because the consumer price index reflects the goods and se
4、rvices bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.8. The CPI is a measure of the overall cost of the goods and services bought by a typical consumer. 24-19. Each week, the Bureau of Labor Statistics computes and reports the consumer price index.10
5、. The Bureau of Labor Statistics is part of the U.S. Department of Labor. Bureau of Labor Statistics MSC:11. The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.12. The content of the basket of goods and services used to compute th
6、e CPI changes every month.13. By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.14. When the consumer price index is comput
7、ed, the base year is always the first year among the years being considered.15. The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.16. The CPI is always 1 in the bas
8、e year.17. If the current year CPI is 140, then the price level has increased 40 percent since the base year. Applicative18. If the current year CPI is 90, then the price level has decreased 10 percent since the base year.19. The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus
9、 the CPI in 2006) by the CPI in 2006, then multiplying by 100.20. If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.21. The producer price index measures the cost of a basket of goods and services bought by firms rather than consu
10、mers. PPI MSC:22. Changes in the consumer price index are useful in predicting changes in the producer price index. CPI | PPI MSC:23. Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing. Categories of consumer spending MSC:24. Data from the Bureau
11、of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.25. Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on recreation and consumer spending on e
12、ducation and communication.26. Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumers budget.27. The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.28. Substitution bias occurs because
13、 the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive. CPI | Substitution bias MSC:29. Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.30. When a new good is introduced, consumers
14、have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being. CPI | Introduction of new goods MSC:31. The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.32. If the quality
15、 of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls. CPI | Quality change MSC:33. The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.34. There is n
16、o longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.35. Many economists believe the bias in the CPI is now only about half as large as it once was.36. The CPI and GDP deflator usually tell two different stor
17、ies about how quickly prices are rising. CPI | GDP deflator MSC:37. When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.38. When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.39. In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.NA
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