EC202 1nd Edition Lecture 12Outline of Last Lecture I. End of lesson 3II. Circular flowIII. Measurement of GDPOutline of Current Lecture II. InflationCurrent Lecture-inflation: a measure of how fast the average price level is changing over time-hyperinflation: a situation in which the inflation rate is extremely high-prices are raised at a rate of 50% or higher per month-purchasing power-real values depend on prices-real value of money declines as prices are increased-fixed nominal incomes decline in real value when prices are increased-measuring inflation-GDP deflator (P)-an index of prices obtained indirectly from the calculation of GDP-Consumer Price Index (CPI) -a measure of the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services relative to its cost in a base period-CPI = current cost of fixed basket divided by base-year cost of fixed basket-measures changes in the cost of a typical market basketThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-is used to eliminate the effects of inflation from economic data-constructing the CPI (3 stages):1. selecting the CPI basket 2. conducting the monthly price survey3. calculating the
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