ModuleThe Measurementand Calculation of Inflation

KRUGMAN'SMACROECONOMICS for AP*

15

Margaret Ray and David Anderson

What you will learnWhat you will learn

in thisin this ModuleModule::

• How the inflation rate is measured

• What a price index is and how it is calculated

• The importance of the consumer price index and other price indexes

• Aggregate Price Level

Price Indexes and the Aggregate Price Indexes and the Aggregate Price LevelPrice Level

Market Baskets and Price Market Baskets and Price IndexesIndexes

•Market Basket

Market Baskets and Price Market Baskets and Price IndexesIndexes

•Price Index

Price Index in given year =Cost of market basket in a given year

Cost of market basket in base year X 100

Inflation Rate =Price index in year 2 - Price index in year 1

Price index in year 1 X 100

The Consumer Price IndexThe Consumer Price Index

•Consumer Price Index (CPI)

•What is it?

Other Price MeasuresOther Price Measures

• Producer Price Index (PPI)

• GDP deflator

• Coincidence of inflation measures