ECON 1BB3 Lecture Notes - Lecture 10: Savings Account, Interest Rate, Gdp Deflator

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Gang Wu

Document Summary

: cpp and oas: cost of living, problems with its measurement, substitutions bias, when prices change, buyers will buy substitute goods at better prices, this substitution is overlooked and overstated by cpi. Introduction of new goods (mainly high tech: consumers have more variety, greater variety = each dollar is more valuable, less money needed to maintain standard of living, ***new goods & services not included in basked unless it is revised, unmeasured quality change, quality improvements are often reflected in prices, however, they are overvalued and therefore overstate inflation, cpi vs. gdp deflator. Cpi: cpi: goods & services bought by typical consumers, cpi: prices change, quantities stay the same, calculating cpi = [cost of basket (now) / cost of basket (base)] x 100, gdp deflator, gdp deflator: reflects prices of all goods & services produced domestically, gdp deflator: quantities change, prices stay the same, calculating gdp deflator = [nominal gdp / real gdp] x 100.