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ECON 1BB3 Lecture Notes - Gdp Deflator

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Bridget O' Shaughnessy

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Economics 1BB3 January 24th, 2013
How do I know if I’m better off than my parents were?
-Gross Domestic Product (GDP) increase if prices increase or if output
-Real GDP vs nominal GDP (base year prices vs current year prices)
GDP deflator: a measure of the price level
GDP Deflator = (Nominal GDP / Real GDP) x 100
How do we calculate inflation using “CPI”?
-Consumer Price Index (CPI): measures overall cost of goods for a
typical urban household
-It is a measure of the price level
-Steps to calculating inflation using CPI
1. Fix the basket of goods
2. CPI = (Cost in current year / Cost in base year) x 100
3. Inflation Rate = ( (Pt Pt-1) / (Pt-1) ) x 100
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