Chapter 6Chapter 7ECON 222 1st EditionExam # 1 Study Guide Chapter 61. CPI (Consumer Price Index)1.1. Definition: CPI measures the overall cost of the goods and services bought by a typical consumer. It is used to monitor changes in cost of living over time.1.2. Calculating1.2.1. Bureau of Labor Statistics first surveys consumers’ typical quantity bought in a period1.2.2. Then BLS finds out the prices in that period1.2.3. The total cost of buying products in the period is then computed1.2.4. Finally to calculate CPI ¿totalcost of the basketttotal cost of basketbase yearx 1002. Inflation Rate2.1. Calculate:2.1.1. Inflation Ratet=(CPIt−CPIt−1CPIt −1)x 1003. Differences between CPI and GDP3.1. Imported consumer goods3.1.1. Included in CPI3.1.2. Excluded in GDP3.2. Capital Goods3.2.1. Excluded from CPI3.2.2. Included in GDP (if produced domestically)3.3. “The Basket”3.3.1. CPI uses fixed basket3.3.2. GDP deflator uses basket of currently produced goods and services (matters if prices are changing)Chapter 71. GDP per capita1.1. Definition: A better measure of the economic well-being of individuals in society1.2. Calculate:1.2.1. Nominal ¿(NGDPtPopulationt)1.2.2. Real ¿(RGDPtPopulationt)2. Growth rate per capita2.1. Calculate2.1.1. Nominal¿(NGDPt−NGDPt −1NGDPt −1)x 1002.1.2. Real¿(RGDPt−RGDPt −1RGDPt −1)x 1002.1.3. Represents Economic Progress3. Labor Productivity3.1. Definition: “Output per worker”. Long-run growth and stability is possible with labor productivity3.2. Calculate3.2.1. LP¿(RGDP¿employed)3.3. Capital3.3.1. Physical: i.e. machines (help to produce faster)3.3.2. Human: i.e. knowledge and skills (acquired through education and experience)3.3.3.Technology: improves productivity and output per