cost of living

1. CHAPTER 4:
COST OF
LIVING

2. INFLATION
the rate of increase in prices over a given period of
time
DEMAND-PULL INFLATION
a general sustained increase in prices resulting from
excessive demand for goods
COST-PUSH INFLATION
increased pricing by sellers in the absence of increased
demand

3. BASKET OF GOODS AND SERVICES
• commonly products purchased and consumed
by households
• the basket is representative of consumer
spending patterns, and the change in its
price represents the rate of inflation
faced by consumers as a whole
• consumer price index (CPI) measures the
price change over time for a basket of
goods and services

4. CONSUMER PRICE INDEX (CPI)
• Used to measure the total goods and services
purchased and consumed by a household compared to
a base year
• measure of the average change in prices paid over
time by urban households for a market basket of
goods and services (Encyclopedia of American
Government and Civics).
Main use of CPI:
• Determining inflation and purchasing power of the
country's currency.

5. Economic crashes
• Usually begin with the vicious cycle of higher prices
and the expectations of higher prices.
Vicious cycle
• An action tends to bring a reaction that offset any
gain arised by the initial action and worsens the
initial problem
Velocity of money
• It is the average number of times a currency is spent
on purchasing goods and services

6. Recession
• Three consecutive quarters of falling real GDP
Depression
• Includes a 10% decrease in per capita GDP and
consumption and 10% unemployment that persist for at
least 24 months
Stagflation
• The condition when the production of goods and
services slow down or is put to a halt or simply
stagnates while prices are rising.

7. COST OF LIVING
ALLOWANCE (COLA)
• Is an adjustment applied to the income
received by the employees to sustain the
standard living due to the inevitable rising
prices or inflation.
• Cost of goods and services has direct impact
to COLA.
• Determined by a regular survey of the
employees and the suppliers of goods and
services.

8. • It measures the material characteristics of
the economy and the amount of goods and
services that are produced.
• it is measured by the collective cost of goods
and services considered to be essential.
• Life expectancy, quality of education and
environment, literacy rate, GNI per capita,
and Gini Index.
STANDARD OF LIVING

9. BIG MAC INDEX
• The metric used that is based on the
concept of purchasing power parity.
• Currency exchange of equalizing prices of
products in various countries in the long
run.
• It is an idea of an identical basket of
goods and services in different countries.
• Useful in investing decisions.