Transcript 24.1.1 How the Consumer Price Index Is Calculated

Chapter 24
Measuring
the Cost of Living
Measuring the Cost of Living
• Inflation refers to a situation in which the
economy’s overall price level is rising.
• The inflation rate is the percentage
change in the price level from the
previous period.
24.1 THE CONSUMER 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.
24.1 THE CONSUMER PRICE INDEX
• When the CPI rises, the typical family has
to spend more dollars to maintain the same
standard of living.
24.1.1 How 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) identifies
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.
24.1.1 How the Consumer Price Index
Is Calculated
• Find the Prices: Find the prices of each of
the goods and services in the basket for
each point in time.
24.1.1 How the Consumer Price Index Is
Calculated
• Compute the Basket’s Cost: Use the data on
prices to calculate the cost of the basket of
goods and services at different times.
24.1.1 How the Consumer Price Index
Is Calculated
• Choose a Base Year and Compute the Index:
– 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.
24.1.1 How the Consumer Price
Index Is Calculated
• Compute the inflation rate: The inflation
rate is the percentage change in the price
index from the preceding period.
24.1.1 How the Consumer Price
Index Is Calculated
• The Inflation Rate
– The inflation rate is calculated as follows:
CPI in Year 2 - CPI in Year 1
Inflation Rate in Year 2 =
100
CPI in Year 1
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright©2004 South-Western
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright©2004 South-Western
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright©2004 South-Western
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright©2004 South-Western
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright©2004 South-Western
24.1.1 How the Consumer 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: What’s in the CPI’s Basket?
16%
Food and
beverages
17%
Transportation
Education and
communication
41%
Housing
6%
6%
6% 4% 4%
Medical care
Recreation
Apparel
Other goods
and services
CONSUMPTION AND SAVING
APC
Consumption / Disposable Income
APS
Saving / Disposable Income
MPC
Change in Consumption
Change in Disposable Income
MPS
Change in Saving
Change in Disposable Income
GLOBAL PERSPECTIVE
Average Propensities to Consume,
Selected Nations, 1999
.80
.85
.90
.95
1.0
Canada
.986
United States
.976
Netherlands
.972
United Kingdom
.940
Germany
.907
Italy
.873
Japan
.869
France
.842
Statistical Abstract of the United States, 2000
24.1.2 Problems 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.
24.1.2 Problems in Measuring the
Cost of Living
• Substitution bias
• Introduction of new goods
• Unmeasured quality changes
24.1.2 Problems 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 have
become relatively less expensive.
• The index overstates the increase in cost of
living by not considering consumer
substitution.
24.1.2 Problems in Measuring the
Cost of Living
• Introduction of New Goods
– The basket does not reflect the change in
purchasing power brought on by the
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.
24.1.2 Problems in Measuring the
Cost of Living
• Unmeasured Quality Changes
– If the quality of 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
quality, but such differences are hard to
measure.
24.1.2 Problems 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 programs use the CPI to adjust for
changes in the overall level of prices.
– The CPI overstates inflation by about 1
percentage point per year.
24.1.3 The GDP Deflator versus the
Consumer Price Index
• The GDP deflator is calculated as follows:
Nominal GDP
GDP deflator =
 100
Real GDP
24.1.3 The 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.
24.1.3 The 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.
24.1.3 The 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.
24.1.3 The 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 currently produced goods and services to the
price of the same goods and services in the base
year.
Figure 2 Two Measures of Inflation
Percent
per Year
15
CPI
10
5
0
GDP deflator
1965
1970
1975
1980
1985
1990
1995
2000
Copyright©2004 South-Western
24.2. CORRECTING ECONOMIC
VARIABLES FOR THE EFFECTS OF
INFLATION
• Price indexes are used to correct for the effects of
inflation when comparing dollar figures from
different times.
24.2.1 Dollar Figures from Different
Times
• Do the following to convert (inflate) Babe Ruth’s
wages in 1931 to dollars in 2001:
Price level in 2001
Salary2001  Salary1931 
Price level in 1931
177
 $80,000 
15.2
 $931,579
Table 2 The Most Popular Movies of All Times,
Inflation Adjusted
Copyright©2004 South-Western
24.2.2 Indexation
• When some dollar amount is automatically
corrected for inflation by law or contract,
the amount is said to be indexed for
inflation.
24.2.3 Real and Nominal Interest
Rates
• Interest represents a payment in the future
for a transfer of money in the past.
24.2.3 Real 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.
24.2.3 Real 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 Rates
Interest Rates
(percent
per year)
15
10
Nominal interest rate
5
0
Real interest rate
–5
1965
1970
1975
1980
1985
1990
1995
2000
Copyright©2004 South-Western
Summary
• 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 overall level of
prices in the economy.
• The percentage change in the CPI measures the
inflation rate.
Summary
• 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 unmeasured changes in quality.
• Because of measurement problems, the CPI
overstates annual inflation by about 1 percentage
point.
Summary
• The GDP deflator differs from the CPI because it
includes goods and services produced rather than
goods and services consumed.
• In addition, the 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.
Summary
• 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.
Questions for Reviews
Chapter 24
Measuring the Cost of Living
1、你认为下列哪一项对消费物价指数影响大：鸡肉价格
上升10%，还是鱼子酱价格上升10%？为什么？
2、CPI的概念？描述使消费物价指数成为衡量生活费用
的一个不完善指标的三个问题。
答2：消费物价指数的目的是衡量生活费用的变动，但消
费物价指数并不是生活费用的完美衡量指标。因为它
存在三个难以解决的问题：（1）替代倾向；（2）新
产品的引进；（3）无法衡量质量的变动。
3、如果海军潜艇的价格上升了，对消费物价指数影响大，
还是对GDP平减指数影响大？为什么？
4、在长期中，糖果的价格从0.10美元上升到0.60美元。
在同一时期中，消费物价指数从150上升到300。根据
整体通货膨胀进行调整后，糖果的价格变动了多少？
答4：根据整体通货膨胀进行调整后，糖果的价格变动了
0.4美元。
5、解释名义利率和实际利率的含义。它们如何相关？
答5：名义利率是银行所支付的利率。实际利率是根据通
货膨胀校正后的利率。
名义利率和实际利率的关系可写成：
实际利率＝名义利率－通货膨胀率
Ch.24 Problems and Applications
1994 年开始，环境控制法要求
汽油中加入一种新的添加剂以减少空气污染。
这个规定提高了汽油的成本。劳工统计局(BLS)
确定这种成本增加代表着质量提高。
a. 在这种决定为既定时 , 汽油成本增加会提高
CPI 吗 ?
b. 支持劳工统计局决定的理由是什么 ? 支持另一
种决策的理由是什么 ?
(Mankiw-ch.24, Prob.4, p532.)
4.1994 年开始，环境控制法要求汽油中加入一种新的添
加剂以减少空气污染。这个规定提高了汽油的成本。
劳工统计局(BLS)确定这种成本增加代表着质量提高。
(Mankiw-ch.24, Prob.4, p532.)
a. 在这种决定为既定时 , 汽油成本增加会提高 CPI 吗 ?
• 答 : 在这种决定为既定时 , 汽油成本增加会提高 CPI,
因为汽油成本提高后增加了汽油的市场价格.
b. 支持劳工统计局决定的理由是什么 ? 支持另一种决策
的理由是什么 ?
• 答 : 因为汽油成本提高意味着空气污染减少，人们可
以呼吸到更清新的空气，有更健康的生活环境，代表
着消费者福利的提高，而这一点是用 CPI 无法衡量的。
支持另一种决策的理由是汽油价格上升会使人们收入
的实际购买力下降 , 降低美元的实际价值。
Ch.24 Problems and Applications
5. 用以下每一种情况说明在编
制 CPI 中会出现什么问题？并解释之。
a.索尼牌随身听的发明
b. 汽车气囊的引进
c. 由于个人电脑价格下降而使购买量增加
d. 每包早餐麦片中的分量增加了
e.在汽油价格上升后更多地用节油车
(Mankiw-ch.24, Prob.5, p533.)
5. 用以下每一种情况说明在编制 CPI
中会出现什么问题？并解释之。
a.索尼牌随身听的发明
答 : 当索尼牌随身听发明出来后,消费者可以随时随地
收听音乐和广播。这种新产品扩大了消费者的选择。
更多的选择又使每一美元更值钱。因此,消费者为了
维持任何一种既定生活水平所需要的钱少了,但由于
CPI根据固定不变的一篮子物品计算,因此并没有反映
货币购买力的这种变动。
b.汽车气囊的引进
答:当汽车气囊引进时,消费者又多了一种可供选择的物
品,更多的选择使每一美元更值钱,但是由于CPI是根
据固定不变的一篮子物品计算的,因此CPI无法反映货
币购买力的这种变化。
(Mankiw-ch.24, Prob.5) 5.
c.由于个人电脑价格下降而使购买量增加
答:消费者对个人电脑价格下降的反应是增加购买量,但
在计算CPI时,是用固定的一篮子物品,实际上是假设
消费者仍然购买和以前同样数量而现在变得便宜的个
人电脑。由于这个原因,消费物价指数所衡量的生活
费用的下降少于消费者实际感觉到的。
d.每包早餐麦片中的分量增加了
答:如果每包早餐麦片的价格未变而分量增加了，说明每
包早餐麦片的质量变好了，并且一美元的价值也上升
了。尽管劳工统计局想尽其最大努力来考虑早餐麦片
的质量变动，但是仍然难以衡量质量。
e.在汽油价格上升后更多地用节油车
答:消费者对汽油价格上升的反应自然是更多地用节油车，
因为可以降低生活费用。但劳工统计局在计算CPI时
用固定的一篮子物品，实际上CPI所衡量的生活费用
的增加就大于消费者实际感觉到的。
•
•
•
•
•
The New York Times cost $0.15 in
1970 and $0.75 in 2000. The average wage in
manufacturing was $3.36 per hour in 1970 and $14.26 in
2000. (1970年每份《纽约时报》价值0.15美元，而
1999年是0.75美元。1970年制造业平均工资是每小时
3.36美元，1999年是14.26美元.)
a) By what percentage did the price of a newspaper rise?
报纸价格上升的百分比是多少？
b)By what percentage did the wage rise? 工资上涨的百
分比是多少？
c)In each year, how many minutes does a worker have to
work to earn enough to buy a newspaper? 在每年中，工
人分别要工作多少分钟赚的钱才够买一份报纸。
d)Did workers’ purchasing power in terms of newspapers
rise or fall?根据报纸来计算，工人的购买力是上升了，
还是下降了？
(Mankiw-Ch.24, Prob.6, p533)
The New York Times cost $0.15
in 1970 and $0.75 in 2000. The average wage in
manufacturing was $3.36 per hour in 1970 and
$14.26 in 2000.
(Mankiw-Ch.24, Prob.6, p533)
a) By what percentage did the price of a newspaper
rise?
• The price of a newspaper rise
 0.75  0.15 

  100  400%
0.15 

b)By what percentage did the wage rise?
• The wage rise
 14.26  3.36 

  100  324.4%
3.36


c) does a worker have to work to earn enough to buy
a newspaper?
3.36  100
答：in　1970, income / per　min ute 
 5.6美分 / 分钟;
60
0.15  100
ppp. 
 2.6786  3　min utes.
5.6
14.26  100
in2000, income / per min ute 
 23.767Cents / min ute,
60
0.75  100
PPP . 
 3.1556  4　min utes.
23.767
d)Did workers’ purchasing power in terms of newspapers
rise or fall?根据报纸来计算，工人的购买力是上升了，还是下降
了？
Obviously, workers’ purchasing power in terms of
newspapers fall.