Inflation measuring
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There are two main methods to measure inflation: 1) By calculating the percentage change in price indices like the Consumer Price Index (CPI) or Wholesale Price Index (WPI). CPI measures the price of a basket of consumer goods, while WPI measures wholesale goods prices. 2) By calculating the change in the GDP deflator, which is the ratio of nominal GDP to real GDP adjusted for inflation. For example, if nominal GDP is Rs. 1740.2 thousand crores and real GDP is Rs. 1136.9 thousand crores in 1999-2000, the GDP deflator would be 153%. The percentage change in the GDP deflator from one year to the next
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1) If money supply increases, prices rise proportionally. This reduces the real value of cash balances and lowers demand for goods, putting downward pressure on prices.
2) The real balance effect restores equilibrium by linking demand for goods and money - if prices fall, real balances and demand for goods rise, putting upward pressure back on prices.
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Investment multiplier is a concept developed by John Maynard Keynes to show the relationship between initial investment and the resulting increase in aggregate income. The multiplier (k) is calculated as the change in national income (ΔY) divided by the change in investment (ΔI). For example, if an additional investment of Rs. 4,000 crores leads to an additional income of Rs. 16,000 crores, then the multiplier is 4. The value of the multiplier depends directly on the marginal propensity to consume (MPC), as a higher MPC means more of additional income will be spent on consumption, leading to a larger increase in total income.
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This document discusses various investment concepts including:
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2. Key determinants of investment including income, interest rates, Tobin's Q, and marginal efficiency of capital.
3. Multiplier effects including money, fiscal, and investment multipliers which measure the response of endogenous variables to exogenous changes.
4. The accelerator effect whereby growth in GDP encourages businesses to invest more in fixed assets like factories and machinery, further stimulating economic growth.
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This presentation explains various monetary instruments being adopted by the Reserve Bank of India. It also shows their impact on stock market. It also show the statistic trend of inflation, repo rate, reverse repo rate, etc in India.
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There are several types of terms of trade. Net barter TOT is the ratio of export prices to import prices. Gross barter TOT is the ratio of the physical quantity of imports to exports. Income TOT is net barter TOT multiplied by the quantity of exports. Factors like tariffs,
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Alternative theories include the real bills doctrine and the more recent fiscal theory of the price level.
Accelerator Theory
The accelerator theory states that an increase in demand for consumer goods will lead to an increase in demand for capital goods used to produce those consumer goods. It explains the relationship between consumer goods industries and capital goods industries. The accelerator coefficient is the ratio of change in investment to change in consumption or output. The accelerator theory was introduced by T.N. Carver in 1903 and further developed by economists like Harrod, Solow, Samuelson and Hicks to explain business cycles. It assumes a constant capital-output ratio and elastic supply of credit and resources so investment can adjust to changes in demand.
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This document discusses how to calculate GDP, including nominal GDP, real GDP, and the GDP deflator. Nominal GDP is the total value of goods and services using current prices, while real GDP uses constant prices to eliminate the effect of inflation. The GDP deflator measures inflation by dividing nominal GDP by real GDP. Using an example economy, the document demonstrates how to calculate these measures for different years and determine the growth rates of real GDP and inflation rates between years.
Calculating gdp
GDP measures the value of goods and services produced in a country. Nominal GDP uses current prices, while real GDP expresses values in constant prices (such as a base year) to eliminate the effect of inflation. Calculating real GDP allows analysis of changes in economic activity by quantity rather than price changes. The GDP deflator measures inflation as the ratio of nominal to real GDP and the inflation rate shows price level changes between years.
Measuring The Cost of living
The Consumer Price Index (CPI) measures changes in the cost of a fixed basket of goods and services purchased by typical consumers. Statistics BD identifies a market basket of commonly purchased items and surveys prices to calculate the CPI, which tracks costs over time. The CPI is used to calculate inflation rates by comparing costs in the current period to a base year. While useful, the CPI has limitations as it does not account for substitutions, new products, or quality changes that affect consumers' actual cost of living. Economic data can be adjusted for inflation effects by using price indexes to convert nominal values into real terms.
Aggregate price index/Abshor.Marantika/Riki Yosafat
- To measure the aggregate price level, economists calculate the cost of purchasing a market basket of goods and services.
- A price index is the ratio of the current cost of that market basket to the cost in a base year, multiplied by 100.
- Common price indexes include the Consumer Price Index (CPI) which measures prices paid by urban consumers, the Producer Price Index (PPI) which measures prices received by domestic producers, and the GDP deflator which measures the price level by calculating the ratio of nominal to real GDP.
Aggregate price index/Abshor.Marantika/Riki Yosafat
- To measure the aggregate price level, economists calculate the cost of purchasing a market basket of goods and services.
- A price index is the ratio of the current cost of that market basket to the cost in a base year, multiplied by 100.
- Common price indexes include the Consumer Price Index (CPI) which measures prices paid by urban consumers, the Producer Price Index (PPI) which measures prices received by domestic producers, and the GDP deflator which measures the price level by calculating the ratio of nominal to real GDP.
Week 4 GB2201 Measuring the Cost of Living.pdf
Macroeconomic that will help you understand more and help the country by understanding the topic well. Other than that, it also emphasizes in the stability of the country's economical state. Food security as well no poverty plays a huge part in the balance of the economic state of the country.
MACROECONOMICS-CH2
The document discusses key concepts related to measuring economic activity including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. It explains that GDP measures total output, income, and expenditure in an economy. The CPI is used to measure inflation and the cost of living. Different methods for calculating GDP, the GDP deflator, and chained weighted GDP are also outlined.
Nominal and real GNP
This document discusses nominal and real gross national product (GNP). Nominal GNP measures total output at current prices, while real GNP adjusts for inflation by using constant prices from a base year. To calculate real GNP, nominal GNP is divided by the GNP deflator, which is a price index that shows inflation. Comparing nominal and real GNP allows economists to distinguish between changes in output versus changes due to price inflation. Real GNP provides a more accurate view of economic growth by filtering out the effects of rising prices.
INFLATION (1).pptx
Okay, let me go through solving these step-by-step:
1) 2014 price of basket = 200 avocados * $1.2 per avocado + 230 jackets * $100 per jacket = $240 + $23,000 = $23,240
2) 2015 inflation rate = (Price index 2015 - Price index 2014) / Price index 2014 * 100%
= (120 - 110) / 110 * 100% = 9.1%
3) 2016 price of basket = 150 apples * $1.4 per apple + 220 bags * $180 per bag = $210 + $39,600 = $39,810
4) Inflation rate 2016 = (Price index
Measures of Inflation_pgdmib.ppt
1. The document discusses how price indices like the Consumer Price Index (CPI) and Wholesale Price Index (WPI) are constructed by determining a basket of goods and services and tracking their prices over time.
2. It explains how to calculate a price index and inflation rate by setting a base year price level, determining current prices, and calculating the percentage change.
3. Correcting economic variables for inflation is discussed, including using price indices to convert nominal values to real terms and calculating real interest rates.
Consumer price index number and uses of cpi
The document discusses consumer price index (CPI), which is used to measure inflation. It provides examples of calculating CPI using the Laspeyre formula under the aggregate expenditure method and weighted average of price relatives method. CPI is used to measure changes in cost of living and purchasing power over time. It also discusses how CPI can be used to calculate real income by adjusting current income for inflation. Higher CPI indicates higher inflation and lower purchasing power of money.
Gross National Product (GNP)
Examine the composition of national income (or national output);
Study the concepts of Gross National Product (GNP) and Gross Domestic Product (GDP), and differentiate between the two measures;
Look at the two approaches to measuring GDP and GNP;
Learn the differences between real and nominal output: and
Learn what economists use to determine whether the national economy is growing or not.
Macroeconomic indicators
The document discusses several key macroeconomic indicators used to measure and understand a country's economy. It begins by explaining GDP as the total market value of all final goods and services produced within a country in a given period of time. It then discusses how GDP is calculated using the expenditure, income, and value added approaches. The document also covers other indicators like GNP, inflation rates, unemployment rates, and underemployment rates. It explains how to interpret and compare these figures across countries.
Chap 24 costofliving
The document discusses measuring the cost of living and inflation. It describes the Consumer Price Index (CPI) as a measure of the overall cost of goods and services bought by a typical consumer. The CPI is calculated monthly by the Bureau of Labor Statistics and is used to monitor changes in the cost of living over time. While the CPI provides an accurate measure of selected goods, it does not perfectly measure the true cost of living due to problems like substitution bias and unmeasured quality changes.
Inflation research
This document discusses the effect of inflation on Pakistan's economy. It defines inflation as a general and progressive increase in prices where the value of goods rises faster than the value of money. The document outlines the different types of inflation including cost-push inflation, which occurs when businesses raise prices to maintain profits in response to higher production costs, and demand-pull inflation, which arises when aggregate demand exceeds supply. The consumer price index is used to measure inflation. Some factors that can cause inflation in Pakistan are natural calamities, indirect taxes, rising import prices, and shortages in production factors. The document recommends policies like tight monetary policy, contractionary fiscal policy, and increasing domestic production to help control inflation.
Unit two m odule 2 topic one inflation
This document discusses various topics related to inflation including:
1. Definitions of inflation, real vs nominal GDP and interest rates, and different indices used to measure inflation like the GDP deflator, CPI, and PPI.
2. Causes of inflation including demand shocks, supply shocks, and increases in the money supply from a Keynesian and monetarist perspective.
3. Costs of inflation such as its impact on savers, wage-price spirals, arbitrary redistributions of income, and disruption to business planning.
Session 4-5_mankiw_Measuring cost of living.pptx
The document discusses measuring inflation and the cost of living. It introduces the Consumer Price Index (CPI) as a measure of the typical consumer's basket of goods and services. The CPI is used to calculate cost of living adjustments and compare dollar amounts over time. There are problems with using the CPI to fully capture cost of living changes, like substitution bias and quality improvements. The document contrasts the CPI with the GDP deflator and discusses using indexes to correct variables like interest rates for inflation.
Chapter 23b-1.ppt
The document discusses how the consumer price index (CPI) is used to measure inflation and changes in the cost of living over time. The CPI tracks price changes of a basket of goods and services that represent what a typical consumer buys. It is calculated by fixing the basket, finding the prices, computing the basket's cost in different periods, choosing a base year, and computing the price index. The inflation rate is then the percentage change in the price index from the previous period. While the CPI provides an important measure, it may overstate inflation due to substitution bias and failure to account for new goods.
Macro 2.3 inflation
The document provides an overview of notes from economics lessons on inflation. It includes definitions of inflation, examples of historic inflation rates, factors that cause inflation, how to measure inflation using the Consumer Price Index and GDP deflator, and the effects of inflation on different groups. Practice problems are provided for calculating real GDP, nominal GDP, inflation rates, CPI, and the GDP deflator. The document also discusses the tradeoff between unemployment and inflation.
Macro 2.3 inflation
The document provides an overview of topics related to macroeconomics and inflation. It includes notes from class on measuring inflation using the Consumer Price Index and GDP deflator. Examples are given of calculating inflation rates, real GDP, and nominal GDP. The three main causes of inflation are also summarized: too much money supply, demand-pull inflation from excessive spending, and cost-push inflation from increased production costs. Real and nominal interest rates are defined in relation to inflation expectations.
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Inflation measuring
- 1. By Sujata Regoti 2013BIT039
- 2. Two Methods Of Measuring Inflation 1)By Percentage change in Price Index Number(PIN). A) Consumer Price Index(CPI) B)Wholesale Price Index(WPI) 2)By Change in GDP deflator
- 3. Price Index • Market Basket : number of goods that are representative of economy that are put together • The cost of this basket is compared over time • This results in Price Index
- 4. CPI • A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households. • The annual percentage change in a CPI is used as a measure of inflation.
- 5. Example : our hypothetical market basket is made up of movie related goods and services.
- 6. Calculating Our “CPI” • We first need to determine the base year. • Suppose we choose the base-year to be 2006 • The quantities purchased in 2007 and 2008 are irrelevant, because we are assuming the household buys the same market basket of goods each month.
- 7. Calculate Expenditures on Base-Year Quantities (2006) For the CPI we use “Current Prices” and “Constant Quantities”. P2006 x Q2006 = (12 x $8.00) Movie Tickets (6 x $4.00) Popcorn (10 x $2.50) Soda = $145.00
- 8. Cost of the Market Basket in 2007,2008 2008: P2008 x Q2006 = (12 x $12.00) Movie Tickets (6 x $5.50) Popcorn (10 x $3.50) Soda = $212.00 2007: P2007 x Q2006 = (12 x $10.00) Movie Tickets (6 x $5.00) Popcorn (10 x $3.00) Soda = $180.00
- 9. To calculate the CPI we use the following formula: 100 ____ ____ YearBasetheinesExpenditur YearCurrenttheinesExpenditur CPI 100 _____ _____ YearBaseinBasketofCost YearCurrentinBasketofCost CPI
- 10. Calculate the CPI for 2006 CPI2006 = (Cost of Basket2006/Cost of Basket2006) x 100 CPI2006 = (145/145) x 100 = 100 The value of the CPI is always equal to 100 in the base-year.
- 11. Calculate the CPI for 2007 and 2008 2008: CPI2008 = (Cost of Basket2008/Cost of Basket2006) x 100 CPI2008 = (212/145) x 100 = 146.21 2007: CPI2007 = (Cost of Basket2007/Cost of Basket2006) x 100 CPI2007 = (180/145) x 100 = 124.14
- 12. Calculating the Inflation Rate from the CPI • To Calculate the inflation rate we use our growth rate formula. 100 _ __ %_ ValueOld ValueOldValueNew ChangePercent
- 13. Calculate the inflation rate from 2006 to 2007 and from 2007 to 2008 Inflation06-07 = [(CPI2007 – CPI2006)/CPI2006] x 100 Inflation06-07 = [(124.14 – 100)/100] x 100 Inflation06-07 = 24.14% Inflation07-08 = [(CPI2008 – CPI2007)/CPI2007] x 100 Inflation07-08 = [(146.21 – 124.14)/124.14] x 100 Inflation07-08 = 17.78%
- 14. Using Wholesale price index(WPI) • the price of a representative basket of wholesale goods. • Now it is called producer price index(PPI) • India about 435 items were used for calculating the WPI in base year 1993-94 while the advanced base year 2011-2012 uses 676 items. • Calculation of inflation rate : 100 _ __ %_ ValueOld ValueOldValueNew ChangePercent
- 15. Using GNP deflator • GNP Deflator is the ratio of Nominal GNP in a year to the real GNP Of that year • GNP Deflator=Nominal GNP/Real GNP • Gross national product (GNP) is a broad measure of a nation's total economic activity. GNP is the value of all finished goods and services produced in a country in one year by its
- 16. In 1999-2000 Nominal GNP = Rs.1740.2 thousand crores Real GNP (1993-94) = Rs.1136.9 thousand crores GNP deflator(1999-2000)in % =1740.2/1136.9 X 100=153% Nominal GNP in 2000-2001 = Rs.1819.04 thousand crores GNP deflator(2000-2001)in % =1819.04/1136.9 X 100=160% % change in GNP deflator is rate of inflation Thus, Rate of inflation = 160-153/153 X 100=4.6%
- 17. Thank you