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Price Level & inflation Definition of the Consumer Price Index and the GDP deflator Calculation of price index (e.g., CPI, GDP deflator) Calculation of inflation
Price Level & inflation
- Definition of the Consumer Price Index and the GDP deflator
- Calculation of price index (e.g., CPI, GDP deflator)
- Calculation of inflation (Note: inflation is the rate of change in a price index from one year to another)
- Limitation of the CPI (e.g., commodity substitution bias, quality bias, new goods bias, outlet substitution bias)
Aggregate Supply (AS)-Aggregate Demand model (AD)
- AS and AD are relationships between price level & real GDP, other factors held constant
- What are the factors that cause AS and AD to change (i.e., to shift)?
- Understand AS, AD, SAS, LAS Distinction between actual real GDP and potential GDP
- o Understand what an output gap is? What is a recessionary gap and what is an inflationary gap?
- o What is fiscal policy - automatic versus discretionary
- o What is expansionary fiscal policy? What is contractionary fiscal policy?
- o Fiscal policy & shifts in the AD curve
- o Fiscal policy & shifts in the SAS and LAS curve
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