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ECON 1BB3 (535)
Lecture 10

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Department
Economics
Course
ECON 1BB3
Professor
Hannah Holmes
Semester
Winter

Description
Lecture 10 Problems with CPI • there are 3 problems with CPI 1. Substitution bias - ignores consumer substitution; overstates inflation 2. Introduction of new goods - CPI is based on a fix basket of goods and services; overstates inflation 3. Unmeasured quality change - some price changes reflect quality improvements; overstates inflation CPI vs. GDP deflator i. CPI - goods and services bought by typical consumers GDP deflator - reflects prices of all goods and services produced domestically ii. CPI - prices change, quantities stay fixed GDP deflator - quantities change, prices stay fixed Interest rates Ex
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