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Mankiw Chapter 24 pt 1
Consumer Price Index(CPI)
5
Economics
11th Grade
09/14/2008

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Term
CPI
Definition
a measure of the overall cost of the goods and services bought by a typical consumer.
Term
How the CPI is calculated
Definition
1. Fix the Basket
2. Fix the Prices
3. Compute the Basket's Costs
4. Compute the Index
5. Compute the Inflation Rate
Term
Inflation Rate according to CPI
Definition
(CPI in year 2 - CPI in year 1)/CPI in Year 1
x 100
Term
Problems in Measuring the cost of living
Definition
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
Term
Compute the Index
Definition
CPI = Price of basket/Price of basket in base year
x 100
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