STAT 2507 Chapter Notes - Chapter 6: Gdp Deflator, Price Level, Nominal Interest Rate
13 Jul 2018
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Document Summary
The consumer price index is used to monitor changes in the cost of living over time. When the consumer price index rises, the typical family has to spend more dollars to maintain the same standard of living. The inflation rate is the percentage change in the price level from the previous period. The consumer price index (cpi) is a measure of the overall cost of the goods and services bought by a typical consumer. How the cpi is calculated: determine the basket: the first step is to determine which prices are most important to the typical consumer. Cpi = price of basket of goods and services in current year/ price of basket in base year x100: compute the inflation rate: Inflation rate in year 2= cpi year 2- cpi year 1 /cpi year 1 x 100. Problems in measuring the cost of iiving: commodity substitution bias: some prices rise more than others.
