ECO 1102 Lecture Notes - Lecture 5: Nominal Interest Rate, Real Interest Rate, Gdp Deflator

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: Octavian Strimbu

Document Summary

Eco1102 - lecture 5 - measuring the cost of living. Cpi is a measure of the overall cost of goods and services bought by a typical consumer. To determine what a typical consumer buys. To compute the total cost of the same basket at different times. Step 4: choose a base year and compute the index. Cpi = ( cost of basket of goods in current year / cost of the same basket in base year ) * 100. Inflation rate in current year = [ (cpi in current year -- cpi in previous year) / cpi in previous year ] * 100. Some prices rise faster than others, so consumers substitute towards goods that become relatively cheaper. That is, the cpi misses this substitution because it uses a fixed basket of goods. The introduction new goods increases variety, and allows consumers to find products that more closely meet their needs.