Chapter 10 - Inflation and unemployment. In this chapter you will learn about inflation, how it is measured, and its effect on nominal and real incomes. This chapter also examine the official unemployment rate, the different types of unemployment, and the definition of full employment. | Understanding Economics Chapter 10 Inflation and Unemployment Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 2nd edition by Mark Lovewell and Khoa Nguyen Chapter Objectives In this chapter you will: learn about inflation, how it is measured, and its effect on nominal and real incomes examine the official unemployment rate, the different types of unemployment, and the definition of full employment Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Consumer Price Index The consumer price index (CPI) is the most common measure of inflation monitors price changes in a representative “shopping basket” of consumer products includes quantities in a shopping basket determined in a base year compares prices in the current year with those in the base year Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Simple Consumer Price Index Figure , Page 237 Prices Quantity Consumed per Month Expenditure per Month Weights $20 $30 | Understanding Economics Chapter 10 Inflation and Unemployment Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 2nd edition by Mark Lovewell and Khoa Nguyen Chapter Objectives In this chapter you will: learn about inflation, how it is measured, and its effect on nominal and real incomes examine the official unemployment rate, the different types of unemployment, and the definition of full employment Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Consumer Price Index The consumer price index (CPI) is the most common measure of inflation monitors price changes in a representative “shopping basket” of consumer products includes quantities in a shopping basket determined in a base year compares prices in the current year with those in the base year Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Simple Consumer Price Index Figure , Page 237 Prices Quantity Consumed per Month Expenditure per Month Weights $20 $30 $50 $20 ÷ $50 = $40 ÷ $50 = 10 30 $ $ Hamburgers Milkshakes Results of 2000 Survey Prices 2001 Price 2000 Quantity $ x 10 = $ $ x 30 = $ $ $ $ Hamburgers Milkshakes Prices in 2001 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Consumer Price Index Weights (1992) Figure , Page 238 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Food Shelter Household operations and furnishings Clothing and footwear () Transportation Health and personal care Recreation, education, and reading Alcoholic beverages and tobacco products * Nominal Versus Real Income Nominal income is expressed in current dollars Real income is expressed in base-year dollars equals nominal income divided by CPI (expressed in hundredths) Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Limitations of the CPI The CPI does not take full account of consumer .
