I was just looking over my wife’s homework assignment in her basic Econ class.
There’s a question, phrased:
"Using the Internet, find the following:
Is there some reason this guy didn’t just say CPI?
Is it industry standard practice to say “Inflation” instead of CPI if you’re teaching a Freshman-level Economics class?
If this is a dumb question, forgive me: I’m a sociology major, and all of my econ reading has been as an amateur.
The CPI (Consumer Price Index) is how much a certain basket of goods costs at a given time. Inflation measures the rate of change of prices indices such as the CPI.
It’s a sloppy question. There is more than one measure of inflation. Three common ones are the percent change in the CPI, the percent change in the Producer Price Index, and the GDP deflator. Of course, it may be that the point of the question is that people will report slightly different results which will lead to a discussion of the different inflation measures.
Isn’t CPI a term specific to the US, while inflation is the general term?
The term CPI may indeed be unique to the US, but it is not synonomous with inflation.
CPI is one metric for the cost of consumer goods. As an analogy think of CPI as the price of gas, and inflaton as the change in gas prices over time expressed as a percentage.
If you thought that was sloppy, you should see one of the other parts of his assignment:
*
Obtain:
Inflation Rate (%) for 2007
Poverty Rate (%) for 2007
Unemployment Rate (%) for 2007
GDP Rate (%) for 2007
Discount Rate (%) for Dec 2007
Plot all of the above on 1 (one) graph to show their relationship. *
Now, this isn’t a multi-year plot of the variables… it’s just going to be a chart with Unemployment Rate sitting in a line with Inflation Rate and GDP Rate.
I feel like plagiarizing some of Louis Black’s lines upon hearing a certain conversation about a girl and her horse.
My head really wants to explode…
CPI is not US specific. We have it over here too, and Wikipedia has CPI articles in plenty of languages with information about different countries’ CPI history.
Think of it this way: CPI is a tool to measure inflation. And its got quite a few problems, for example, people don’t buy the same stuff today as they did in the past.
And did it really say GDP rate or GDP growth rate?
I typed that verbatim from the hand-out.
Anyone from the daytime crowd have any input here?
Because it excludes substitute or alternative goods, many economists think that the CPI overstates actual inflation.
Only to note that as a rule, the really good teachers don’t teach freshman classes.
But you’ve already discovered that.
Thanks.
I got a good chuckle from that; I’ll make sure to show the wife these posts.
Maybe you’re supposed to calculate the yearly inflation rate (%) for each individual month (i.e, Jan’06-Jan’07, Feb’06-Feb’07, etc.) and then plot that? But yeah, horribly worded question.
This is controversial. I believe inflation is understated by CPI (and don’t get me started on “core CPI”).