1. Correcting Statistics for Inflation

2. Price Index measure of relative price change in between time periods
First developed to determine the wage increases necessary to maintain a constant standard of living.

3. Inflation
Inflation - prolonged rise in the general price level of goods and services
How could inflation pose a threat to the economy?
Deflation-Prolonged decline in the general price level of goods and services

4. Purchasing Power The real goods and services that money can buy
Determines the value of money
A dollar can not buy the same amount after inflation.

5. Measuring Inflation Consumer Price Index Producer Price Index
GDP Price Deflator

6. CPI = Consumer Price Index
CPI-measurement in change in price over a specific groups of goods and services used by average households
Monthly measurement of the market basket.
Representative goods or services

7. CPI & the Market Basket Approx. 80,000 items measure monthly
200 categories of specific goods and services
Separated into 8 groups
What type of goods would you assume would be in the market basket?
What type of good might have been in the market basket when you were born?

8. Market Basket

9. Producer Price Index PPI
Measure of the change in price over time that U.S. producers charge for goods and services
PPIs measure price change from the perspective of the seller
Mostly raw materials

10. GDP Price Deflator
Price index that removes the effect of inflation from GDP
Used to compare one year to a previous year
Measure entire country and adjusts for inflation
Real GDP is left