ECON 1BB3 Lecture Notes - Savings Account, Gdp Deflator, Pension

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

Document Summary

61. 8 indexing- oas(old age security) + cpp (canadian pension plan) both transfer payments. Indexing means that it would go up as the inflation goes up. 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- goods and services bought by typical consumers. Gdp deflator- reflects prices of all goods and services domestically. Gdp deflator- quantities change, prices stay fixed (a/b cpi= [cost of basket in the current year / cost of the basket in the base year ] times 100) (gdp deflat- nom gdp / real gdp x100. Ex. you have decided not to buy a pair of shoes that cost 100$ and instead put the 100$ into a savings account earning 5% intrest/year. Nominal interest rate: interest rate without correction for inflation- measures the increase n the number of dollars in your bank account.