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Consumer Price Index
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The ratio of the value of the fixed basket purchased by the typical consumer to the basket's value in the base year multiplied by 100
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Inflation Rate
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The percent change in a price index
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GDP deflator
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The ratio of nominal GDP to real GDP multiplied by 100
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Basket (of goods and services)
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The quantities of each item purchased by the typical consumer
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Base year
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The benchmark year against which other years are compared
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Bureau of Labor Statistics
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The government agency responsible for tracking prices
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Producer price index
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The ratio of the value of a fixed basket of goods and services purchased by firms to the basket's value in the base year multiplied by 100
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Cost of living
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The income necessary to maintain a constant standard of living
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Standard of living
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Material well-being
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Substitution bias
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The inability of the CPI to account for consumers' substitution toward relatively cheaper goods and services
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Nominal GDP
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Output valued at current prices
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Real GDP
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Output valued at base-year prices
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Indexed contract
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A contract that requires that a dollar amount be automatically corrected for inflation
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Cost-of-living allowance (COLA)
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An automatic increase in income in order to maintain a constant standard of living
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Nominal interest rate
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The interest rate uncorrected for the effects of inflation
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Real interest rate
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The interest rate corrected for the effects of inflation
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