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Chapter 24: Measuring the Cost of Living - Coggle Diagram
Chapter 24: Measuring the Cost of Living
Consumer Price Index (CPI)
measures the consumer’s cost of
living
To
cost of living adjustments (COLAs)
in many contracts( hợp đồng) and in Social Security
Calculate CPI
Fix “basket” (cố định rổ hàng hóa)
Find what is
most consumed
in America, put it in the "basket"
Find the prices
prices of
each goods
in the basket.
Compute the
basket’s cost
Use the prices to caculate
total cost
of the basket
Choose a base year and compute the index
CPI=100*(cost of basket in current year
/cost of basket in base year
Compute the inflation rate
Inflation rate(%)=(CPI this year–CPI last year)/CPI last year*100%
Problems with the CPI
people buy cheaper alternatives
CPI misses new goods that give people more choices
cost of living is rising more than it actually
misses improve in product quality
CPI >< GDP Deflator
Import consumer
goods
have CPI :check:
have GDP deflator :red_cross:
Capital
goods
have CPI :red_cross:
have GDP deflator :check: (
produced in the country
)
The basket
CPI uses fixed basket
GDP deflator uses basket of
currently
produced goods & services
compare: the minimum wage:
$1.15 in Dec 1964
$5.85 in Dec 2007
Amount in today’s dollars=Amount in 1964 dollars*(CPI today / CPI Dec 1964)
$1.15*(211.7/31.3) = $7.78
The minimum wage in 1964 was $7.78 in today’s (2007) dollars.
The real interest(lãi suất) rate follow inflation
Real interest rate = (nominal interest rate) – (inflation rate)
real=Danh nghĩa - lạm phát