Index Numbers and the Consumer Price Index 3d

Flashcards about Index Numbers, CPI, and Inflation

What does an index number provide?

A simple way to compare measurements made at different times or in different places.

What should be chosen as the reference value when calculating index numbers?

The value at one particular time (or place).

If it cost $16.00 to fill your gas tank in 1985 and the price index for 2015 was 210, how much did it cost to buy the same amount of gas in 2015?

$33.60

What happens when the reference value is changed in the calculation of an index number?

It results in a different index number.

What is the Consumer Price Index (CPI) based on?

An average of prices for a sample of more than 60,000 goods, services, and housing costs.

How is the rate of inflation from one year to the next usually defined?

As the relative change in the Consumer Price Index.

If you needed $40,000 to maintain a standard of living in 2014, and prices in 2020 were 1.093 times those in 2014, how much would you need in 2020?

$43,720

How to calculate the equivalent price in year Y ($Y) given a price in year X ($X)?

$Y = $X * (CPI in year Y / CPI in year X)

In 1987, the average baseball salary was $412,000, while in 2020, it was $4,430,000. What was the 1987 salary in 2020 dollars, based on CPI?

$939,000

How did the rise in average baseball salaries compare to the overall changes in prices with inflation from 1987 to 2020?

Average baseball salaries rose by approximately a factor of 5 in "real terms" (adjusted for inflation).