ECON1002 Lecture Notes - Lecture 2: Financial Innovation, Real Interest Rate, Retained Earnings

• School: University of Sydney
• Department: Economics
• Course: ECON1002
• Professor: All

Document Summary

You need to rst de ne a base year. You then need to determine a basket of goods and services consumed. If the result you get is that cpi = 1. 25 then prices are 25% higher in the current year compared to the base year. The way this works is the cpi is calculated based on preferences not purchases - this is how the cpi should be calculated but is not how it is calculated. Laspeyres index: a: determine the cost of the utility maximising consumption basket in the base year, b: determine the cost of purchasing the same consumption nastiest in the current year, index value = b/a. Paasche index: a: determine the cost of the current year consumption basket. #1: b: determine the cost of purchasing the same consumption basket in the base. Wednesday, 9 august 2017 year: index value = b/a.