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1

price index shows

how the price of the market basket changes through time

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2

consumer price index is the

average level of the prices of goods consumed by an urban family

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3

cpi is published monthly by the

bureau of labor

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4

step one of calculating the cpi

find the cost of the basket at base period prices

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5

step two of calculating the cpi

find the cost of the basket at current period prices

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6

step three in calculating the cpi

calculate the cpi for the current period

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7

cpi equation is

basket in current year / basket at base prices x 100

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8

the inflation rate is the

percentage change in price level from year to year

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9

first stage of constructing the cpi

selecting the cpi basket

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10

second stage of constructing the cpi

conducting a monthly price survey

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11

third stage of constructing the cpi

using the prices and the basket to calculate the cpi

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12

4 cpi biases

new goods bias, quality change bias, commodity substitution bias, outlet substitution bias

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13

money illusion is

using nominal dollars rather than real dollars to gauge income or wealth

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14

the inflation formula is

(cpi this year - cpi last year) / cpi last year x 100

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15

pure inflation is when

prices of all goods rise by the same percentage over the year

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16

hyperinflation is an

extremely rapid inflation rate with devastating impact

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17

disinflation

declining inflation rate

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18

deflation

rate of downward movement in price level

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19

two sources of pressure on the price level and inflation

demand pull and cost push

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20

demand pull inflation starts because

aggregate demand increases by any factor

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21

cost push inflation results from

an initial increase in resource costs

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22

cost push inflation occurs when AS shifts

left

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23

cost push inflation is

self limiting

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24

self limiting means it will

die out or cure itself

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25

stagflation is the combination of a

rise in price level and drop in real GDP

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26

purchasing power

measure of how much dollar can buy

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27

nominal income

actual number of dollars received over a year

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28

real income

purchasing power of nominal income

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29

inflation does what to borrowers, including the government

helps them

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30

inflation does what to real income

redistributes it

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31

2 main effects of inflation are

redistribution of income and departure from full employment

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32

the nominal interest rate is the price a borrower pays for

the amount loaned and the devaluing of the money

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33

the real interest rate is the

price paid by a borrower to compensate only for the amount loaned

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34

the core inflation rate attempts to

reveal the underlying inflation trend

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35

rational expectation is

the forecast that is based on all relevant information

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36

recession is a period during which

real gdp decreases for at least 2 successive quarters

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37

deflation

falling price level

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38

the phillips curve shows the relationship between

inflation and unemployment

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39

two types of phillips curves

short run and long run

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40

the phillips curve seeks

price level stability

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41

in the phillips cure, the rate of inflation and unemployment are

inversely related

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42

4 phases of the business cycle

peak, trough, recession, expansion

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43

a peak is when the economy is

at full employment and highest level of real gdp

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recession is when real gdp

decreases

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45

trough is where real domestic output and unemployment

bottom out at lowest levels

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46

expansion is a period during which

real gdp increases

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47

secular trend

expansion or contraction over a long period of time

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48

the population is divided into two groups

the working age population and people too young to work or in institutional care

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49

the working age population consists of

people aged 16 or older who are not in jail, hospital, or institutional care

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50

the working age population is divided into two groups

people in the labor force and people not in the labor force

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51

the labor force is the sum of

employed and unemployed workers

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52

labor force is the number of people who are

over 16 and employed or actively seeking a job

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53

job separation

when a worker quits or is fired or is laid off

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54

job search

process of looking for a job

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55

job finding

when unemployed worker accepts new job

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56

entrants

people who are entering the labor force

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reentrants

people who have previously withdrawn from the labor force

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58

the unemployment rate is the percentage of people

in the labor force who are unemployed

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59

equation for unemployment rate

number of people employed / labor force x 100

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60

marginally attached worker

a person who is neither working nor looking for a job but has indicated that they want and are available for a job and has looked for work in the past

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61

discourage worker

a marginally attached worker who has stopped looking after repeated failure

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62

the labor force participation rate is the percentage of

the working age populating who are members of the labor force

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63

equation for labor force participation rate

labor force / working age population x 100

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64

employment to population ratio is the percentage of

people of working age who have jobs

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65

equation for employment to population ratio

number of people employed / working age population x 100

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66

aggregate hours

total hours worked by all people employed during a year

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real wage rate

quantity of goods that can be purchased with an hourâ€™s work

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68

three types of unemployment

frictional, structural, cyclical

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69

frictional unemployment arises from

people entering and leaving the labor force and the creation and destruction of jobs

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frictional unemployment increases when

more people enter the labor market or when unemployment compensation payments increase

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71

structural unemployment arises when

changes in technology or change in skills or location necessary for a job

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72

cyclical unemployment arises from

fluctuations in the business cycle

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73

cyclical unemployment increases during a

recession

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74

cyclical unemployment decreases during an

expansion

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75

is cyclical unemployment included in the natural rate of unemployment?

no

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76

full employment

unemployment rate = natural rate of unemployment

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77

classical theory believes the the economy is

self regulating and always at full employment

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78

in classical theory, government interference

is not needed

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79

classical theory takes which viewpoint

long run

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80

in classical theory, the most significant influence on both AD and AS is

technological change

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81

in classical theory, taxes

blunt peopleâ€™s incentives to work

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82

sayâ€™s law states that

supply creates it own demand

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83

sayâ€™s law states that overproduction

is not possible

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84

Keynesian theory is based on the

herd instincts

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85

in the keynesian theory, when the economy is left alone

it would operate at full employment

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86

K theory says that to achieve and maintain full employment

fiscal and monetary policy is required

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87

fiscal policy

help from the government

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88

monetary policy

help from the central bank

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89

in keynesian theory, money wages are

sticky, especially downward

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90

monetarist theory says the economy is

self regulating and will normally operate at full employment

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91

monetarist theory says the most significant influence on AD is

the quantity of money

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92

in monetarist theory, all recessions result from

inappropriate monetary policy

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93

in monetarist theory, tax rates should

be kept low

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94

real business cycle theory states the main source of economic fluctuations are

random fluctuations in productivity and resource availability

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95

RBC cycles are just variations in growth because of

change of pace in technology change

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96

other sources of changes in rates in RBC are

international disturbances, climate fluctuations, natural disasters

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97

theory of creative destruction

monopolies are destroyed by new industries

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98

theory of contestable markets

there are barriers to enter

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99

in the theory of contestable markets, there is difficulty

switching resources

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100

theory of creative destruction is basically: â€śif you donâ€™t

change, you will die

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