Chapter 11, Section 4

 Be able to explain the consumer price index and how it is calculated  Understand the concepts of aggregate demand and aggregate supply  Understand how the unemployment rate is calculated

 CPI—the most widely used price index  Remember the percentage change formula we used in calculating elasticity of demand or supply?  (price new – price old) divided by (price old) x 100  We can use this formula to determine the percentage change in the price of something over time  Example: Iphones currently sell for $200. Two years ago, the Iphone cost $150. What is the percentage change in price over those two years?  ( )/(150) = 50/150 =.33 x 100 = 33%

 Economists may want to know about the general increase or decrease in prices rather than the change to a specific good  The CPI does this.  It is the price of a representative “market basket” of goods measured each year by the Bureau of Labor Statistics  CPI is reported as a number. Computing the percentage change in this number over time shows the percentage change in prices overall  Example: CPI this year is 205. Five years ago, the CPI was 165. What is the percentage increase in prices over the five year period?  ( )/165 = 40/165 =.24 x 100 = 24%  Figure 11-8 shows how CPI is calculated

 Look at Exhibit on p. 305

 Look at Exhibit on p. 307  Note that employment rate and unemployment rate are not simply opposites … they use different figures in their denominators  Unemployment rate = unemployed persons divided by civilian labor force  Employment rate = employed persons divided by noninstitutional adult civilian population