ECON 1BB3 Lecture 6: Chapter 6 – 7 Review.docx
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ECON 1BB3 Full Course Notes
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Chapter 6: measuring the cost of living: consumer price index (cpi, measure of the overall cost of the goods and services bought by a typical consumer, it is a measure of the price level, how is it calculated, determine the basket of goods, find the prices, compute the basket"s cost, choose a base year and compute the index, how do we calculate inflation using cpi, q, problems with cpi, substitution bias ignores consumer substitution; overstates inflation, introduction of new goods cpi is based on a fixed basket of goods and services; overstates inflation, unmeasured quality change some price changes reflect quality improvements; overstates inflation, cpi vs. gdp deflator, cpi reflects prices of all goods and services bought by typical consumers. Chapter 7: production and growth: productivity: the quantity of goods and services that a worker can produce for each hour of work, determinants of productivity, physical capital (ex.