曼昆经济学原理24measuring-cost课件.pptx

1、Copyright2004 South-WesternMeasuring the Cost of Living Copyright2004 South-WesternMeasuring the Cost of Living refers to a situation in which the economys overall price level is rising. The is the percentage change in the price level from the previous period.Copyright2004 South-WesternTHE CONSUMER

2、PRICE INDEX The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer. The Bureau of Labor Statistics reports the CPI each month. It is used to monitor changes in the cost of living over time.Copyright2004 South-WesternTHE CONSUMER PRICE I

3、NDEX When the CPI rises, the typical family has to spend more dollars to maintain the same standard of living.Copyright2004 South-WesternHow the Consumer Price Index Is Calculated Fix the Basket: Determine what prices are most important to the typical consumer. The Bureau of Labor Statistics (BLS) i

4、dentifies a market basket of goods and services the typical consumer buys. The BLS conducts monthly consumer surveys to set the weights for the prices of those goods and services.Copyright2004 South-WesternHow the Consumer Price Index Is Calculated Find the Prices: Find the prices of each of the goo

5、ds and services in the basket for each point in time.Copyright2004 South-WesternHow the Consumer Price Index Is Calculated Compute the Baskets Cost: Use the data on prices to calculate the cost of the basket of goods and services at different times.Copyright2004 South-WesternHow the Consumer Price I

6、ndex Is Calculated Designate one year as the base year, making it the benchmark against which other years are compared. Compute the index by dividing the price of the basket in one year by the price in the base year and multiplying by 100. Copyright2004 South-WesternHow the Consumer Price Index Is C

7、alculated Compute the inflation rate: The inflation rate is the percentage change in the price index from the preceding period.Copyright2004 South-WesternHow the Consumer Price Index Is Calculated The Inflation Rate The inflation rate is calculated as follows:Inflation Rate in Year 2 =CPI in Year 2-

8、CPI in Year 1CPI in Year 1100Table 1 Calculating the Consumer Price Index and the Inflation Rate: An ExampleCopyright2004 South-WesternTable 1 Calculating the Consumer Price Index and the Inflation Rate: An ExampleCopyright2004 South-WesternTable 1 Calculating the Consumer Price Index and the Inflat

9、ion Rate: An ExampleCopyright2004 South-WesternTable 1 Calculating the Consumer Price Index and the Inflation Rate: An ExampleCopyright2004 South-WesternTable 1 Calculating the Consumer Price Index and the Inflation Rate: An ExampleCopyright2004 South-WesternCopyright2004 South-WesternHow the Consum

10、er Price Index Is Calculated Calculating the Consumer Price Index and the Inflation Rate: Another Example Base Year is 2002. Basket of goods in 2002 costs $1,200. The same basket in 2004 costs $1,236. CPI = ($1,236/$1,200) 100 = 103. Prices increased 3 percent between 2002 and 2004.FYI: Whats in the

11、 CPIs Basket?16%Food andbeverages17%TransportationMedical care6%Recreation6%Apparel4%Other goodsand services4%41%Housing6%Education and communicationCopyright2004 South-WesternCopyright2004 South-WesternCopyright2004 South-Western中国现行的cpi构成及权比 1 食品 34% 2 娱乐教育文化用品及服务 14% 3 居住 13% 4 交通通讯 10% 5 医疗保健个人用

12、品 10% 6 衣着 9% 7 家庭设备及维修服务 6% 8 烟酒及用品 4%Copyright2004 South-WesternProblems in Measuring the Cost of Living The CPI is an accurate measure of the selected goods that make up the typical bundle, but it is not a perfect measure of the cost of living.Copyright2004 South-WesternProblems in Measuring the

13、Cost of Living Substitution bias Introduction of new goods Unmeasured quality changesCopyright2004 South-WesternProblems in Measuring the Cost of Living Substitution Bias The basket does not change to reflect consumer reaction to changes in relative prices. Consumers substitute toward goods that hav

14、e become relatively less expensive. The index overstates the increase in cost of living by not considering consumer substitution.Copyright2004 South-WesternProblems in Measuring the Cost of Living Introduction of New Goods The basket does not reflect the change in purchasing power brought on by the

15、introduction of new products. New products result in greater variety, which in turn makes each dollar more valuable. Consumers need fewer dollars to maintain any given standard of living.Copyright2004 South-WesternProblems in Measuring the Cost of Living Unmeasured Quality Changes If the quality of

16、a good rises from one year to the next, the value of a dollar rises, even if the price of the good stays the same. If the quality of a good falls from one year to the next, the value of a dollar falls, even if the price of the good stays the same. The BLS tries to adjust the price for constant quali

17、ty, but such differences are hard to measure.Copyright2004 South-WesternProblems in Measuring the Cost of Living The substitution bias, introduction of new goods, and unmeasured quality changes cause the CPI to overstate the true cost of living. The issue is important because many government program

18、s use the CPI to adjust for changes in the overall level of prices. The CPI overstates inflation by about 1 percentage point per year. Copyright2004 South-WesternThe GDP Deflator versus the Consumer Price Index The GDP deflator is calculated as follows:GDP deflator =Nominal GDPReal GDP100Copyright20

19、04 South-WesternThe GDP Deflator versus the Consumer Price Index The BLS calculates other prices indexes: The index for different regions within the country. The producer price index, which measures the cost of a basket of goods and services bought by firms rather than consumers. Copyright2004 South

20、-WesternThe GDP Deflator versus the Consumer Price Index Economists and policymakers monitor both the GDP deflator and the consumer price index to gauge how quickly prices are rising. There are two important differences between the indexes that can cause them to diverge.Copyright2004 South-WesternTh

21、e GDP Deflator versus the Consumer Price Index The GDP deflator reflects the prices of all goods and services produced domestically, whereas. the consumer price index reflects the prices of all goods and services bought by consumers. Imports consumption Non consumption product Gasoline productCopyri

22、ght2004 South-WesternThe GDP Deflator versus the Consumer Price Index The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year (only occasionally does the BLS change the basket). whereas the GDP deflator compares the price of cur

23、rently produced goods and services to the price of the same goods and services in the base year.Figure 2 Two Measures of Inflation1965Percentper Year15CPIGDP deflator10501970197519801985199020001995Copyright2004 South-WesternCopyright2004 South-WesternCORRECTING ECONOMIC VARIABLES FOR THE EFFECTS OF

24、 INFLATION Price indexes are used to correct for the effects of inflation when comparing dollar figures from different times.Copyright2004 South-WesternDollar Figures from Different Times Do the following to convert (inflate) Babe Ruths wages in 1931 to dollars in 2001:SalarySalaryPrice level in 200

25、1Price level in 193120011931$80,.$931,000177152579Table 2 The Most Popular Movies of All Times, Inflation AdjustedCopyright2004 South-WesternCopyright2004 South-WesternIndexation When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for

26、 inflation.Copyright2004 South-WesternReal and Nominal Interest Rates Interest represents a payment in the future for a transfer of money in the past. CD buyer with $1000 deposit Interest rate =10% Depends on the price of CD Inflation rate = 0, 6%,10%,12%,-2% After a year, how many CDs she will get?

27、Copyright2004 South-WesternReal and Nominal Interest Rates The nominal interest rate is the interest rate usually reported and not corrected for inflation. It is the interest rate that a bank pays. The real interest rate is the nominal interest rate that is corrected for the effects of inflation.Cop

28、yright2004 South-WesternReal and Nominal Interest Rates You borrowed $1,000 for one year. Nominal interest rate was 15%. During the year inflation was 10%.Real interest rate = Nominal interest rate Inflation= 15% - 10% = 5%Figure 3 Real and Nominal Interest Rates1965Interest Rates(percentper year)15

29、Real interest rate105051970197519801985199019952000Nominal interest rateCopyright2004 South-WesternCopyright2004 South-WesternSummary The consumer price index shows the cost of a basket of goods and services relative to the cost of the same basket in the base year. The index is used to measure the o

30、verall level of prices in the economy. The percentage change in the CPI measures the inflation rate.Copyright2004 South-WesternSummary The consumer price index is an imperfect measure of the cost of living for the following three reasons: substitution bias, the introduction of new goods, and unmeasu

31、red changes in quality. Because of measurement problems, the CPI overstates annual inflation by about 1 percentage point. Copyright2004 South-WesternSummary The GDP deflator differs from the CPI because it includes goods and services produced rather than goods and services consumed. In addition, the

32、 CPI uses a fixed basket of goods, while the GDP deflator automatically changes the group of goods and services over time as the composition of GDP changes.Copyright2004 South-WesternSummary Dollar figures from different points in time do not represent a valid comparison of purchasing power. Various laws and private contracts use price indexes to correct for the effects of inflation. The real interest rate equals the nominal interest rate minus the rate of inflation.