merged

Day Money Spent Products Purchased Price Level
1 70 Gills 7 10
2 70 Gills 10 7
3 70 Gills 14 5
4 70 Gills 10 7
5 140 Gills 10 14
6 140 Gills 14 10
7 140 Gills 7 20
Notice that the price level changes each day depending on the relationship between the quantity
of money spent and the quantity of products purchased. For instance, when the quantity of
money spent doubles on Day 5, and the quantity of products purchased remains the same as on
Day 4, the price level doubles.
Also notice that the daily standard of living depends solely on the quantity of production. The
castaways have the highest standard of living on Days 3 and 6, because more is produced (14
units) on those days than on the other days. Doubling the money supply for Days 5, 6, and 7
affects the price level, but not the standard of living.
Consumer Price Index
The price level in the economy is measured by constructing a price index. The most widely
reported price index is the consumer price index (CPI). The consumer price index is based on the
price of a market basket of goods and services. The market basket consists of a wide variety of
goods and services purchased by typical households.
Broken down into categories, the market basket consisted (as of December, 2013) of housing
(42%), transportation (16%), food and beverages (15%), medical care (8%), education and
communication (7%), recreation (6%), apparel (3%), and other (3%). The Bureau of Labor
Statistics determines the price of the market basket to calculate the consumer price index. The
CPI for the years 1913 through 2014 is detailed in the table below.
Consumer Price Index Table
Year CPI Year CPI Year CPI Year CPI Year CPI
1913 9.9 1934 13.4 1955 26.8 1976 56.9 1997 160.5
1914 10.0 1935 13.7 1956 27.2 1977 60.6 1998 163.0
1915 10.1 1936 13.9 1957 28.1 1978 65.2 1999 166.6
1916 10.9 1937 14.4 1958 28.9 1979 72.6 2000 172.2
1917 12.8 1938 14.1 1959 29.1 1980 82.4 2001 177.1
1918 15.1 1939 13.9 1960 29.6 1981 90.9 2002 179.9
1919 17.3 1940 14.0 1961 29.9 1982 96.5 2003 184.0
1920 20.0 1941 14.7 1962 30.2 1983 99.6 2004 188.9
1921 17.9 1942 16.3 1963 30.6 1984 103.9 2005 195.3
1922 16.8 1943 17.3 1964 31.0 1985 107.6 2006 201.6
1923 17.1 1944 17.6 1965 31.5 1986 109.6 2007 207.3
1924 17.1 1945 18.0 1966 32.4 1987 113.6 2008 215.3
1925 17.5 1946 19.5 1967 33.4 1988 118.3 2009 214.5
1926 17.7 1947 22.3 1968 34.8 1989 124.0 2010 218.1
1927 17.4 1948 24.1 1969 36.7 1990 130.7 2011 224.9
1928 17.1 1949 23.8 1970 38.8 1991 136.2 2012 229.6
1929 17.1 1950 24.1 1971 40.5 1992 140.3 2013 233.0
1930 16.7 1951 26.0 1972 41.8 1993 144.5 2014 237**
1931 15.2 1952 26.5 1973 44.4 1994 148.2
1932 13.7 1953 26.7 1974 49.3 1995 152.4
1933 13.0 1954 26.9 1975 53.8 1996 156.9 **estimate
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
Inflation and Unemployment 4 - 2