ECON 1BB3 Lecture Notes - Canada Pension Plan, Core Inflation, Transfer Payment

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

Summary of lecture notes from chapter 6 and practice questions. Key points: the consumer price index shows the cost of a basket of goods and services relative to the cost of the same basket in the base year. The index is used to measure the overall level of prices in the economy. The percentage change in the consumer price index measures the inflation rate: the consumer price index is an imperfect measure of the cost of living for three reasons. First, it does not take into account consumers" ability to substitute toward goods that become relatively cheaper over time. Second, it does not take into account increases in the purchasing power of the dollar due to the introduction of new goods. Third, it is distorted by unmeasured changes in the quality of goods and services. As a result, imported goods affect the consumer price index but not the gdp deflator.