Principles+of+Economics+7th+Edition+Mankiw-Solution+Manual Chapter 24 11

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1、Chapter11/MeasuringtheCostofLiving❖20724MEASURINGTHECOSTOFLIVINGWHAT’SNEWINTHESEVENTHEDITION:AnewIntheNewsfeatureon“MonitoringInflationintheInternetAge”hasbeenadded.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:Øhowtheconsumerpriceindex(CPI)isconstructed.ØwhytheCP

2、Iisanimperfectmeasureofthecostofliving.ØhowtocomparetheCPIandtheGDPdeflatorasmeasuresoftheoverallpricelevel.Øhowtouseapriceindextocomparedollarfiguresfromdifferenttimes.Øthedistinctionbetweenrealandnominalinterestrates.CONTEXTANDPURPOSE:Chapter11isthesecondchapterofatwo-chaptersequen

3、cethatdealswithhoweconomistsmeasureoutputandpricesinthemacroeconomy.Chapter10addressedhoweconomistsmeasureoutput.Chapter11developshoweconomistsmeasuretheoverallpricelevelinthemacroeconomy.ThepurposeofChapter11istwofold:first,toshowstudentshowtogenerateapriceindexand,second,toteachthe

4、mhowtoemployapriceindextocomparedollarfiguresfromdifferentpointsintimeandtoadjustinterestratesforinflation.Inaddition,studentswilllearnsomeoftheshortcomingsofusingtheconsumerpriceindexasameasureofthecostofliving.©2012CengageLearning.AllRightsReserved.Maynotbescanned,copiedorduplicate

5、d,orpostedtoapubliclyaccessiblewebsite,inwholeorinpart.Chapter11/MeasuringtheCostofLiving❖207KEYPOINTS:·Theconsumerpriceindex(CPI)showsthecostofabasketofgoodsandservicesrelativetothecostofthesamebasketinthebaseyear.Theindexisusedtomeasuretheoveralllevelofpricesintheeconomy.Thepercent

6、agechangeintheconsumerpriceindexmeasurestheinflationrate.·Theconsumerpriceindexisanimperfectmeasureofthecostoflivingforthreereasons.First,itdoesnottakeintoaccountconsumers’abilitytosubstitutetowardgoodsthatbecomerelativelycheaperovertime.Second,itdoesnottakeintoaccountincreasesinthep

7、urchasingpowerofthedollarduetotheintroductionofnewgoods.Third,itisdistortedbyunmeasuredchangesinthequalityofgoodsandservices.Becauseofthesemeasurementproblems,theCPIoverstatestrueinflation.·Liketheconsumerpriceindex,theGDPdeflatormeasurestheoveralllevelofpricesintheeconomy.Thetwopric

8、eindexesusua