ECON 1000 Lecture Notes - Lecture 6: Pie Chart, Old Age Security, Real Interest Rate
11 Apr 2016
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Cpi measures the typical consumer"s cost of living (basis of costs of living adjustments colas in many labour and other conracts, income taxes, pensions and in ei payments. Determine the basket, stats can surverys to determine typical basket (what consumers spend their money on, like a pie chart) Find the prices: stats can collects data on the prices of all the goods in the basket (how much does it cost for basket) Choose a base year and compute the cpi (= cost of current basket/ cost of basket in base year) Inflation rate= cpi this year- cpi last year/ cpi last year x100. Redo every couple of years (i. e. to include cell phones) Can be misleading if what people are consuming changes (substitutes), mean may be overly high. Over time, some prices rise faster than others. Consumers substitute toward goods that become relatively cheaper. The cpi misses this substitution because it uses a fixed basket of goods.
