ECN 204 Lecture Notes - Nominal Interest Rate, Real Interest Rate, Old Age Security
1 May 2012
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Document Summary
The basis of cost of living adjustments (colas) in many contracts and in social security. Consumer price index (cpi)- is a measure of the overall cost of the goods and services bought by a typical consumer. How cpi is calculated: determine the basket. Statistics canada surveys consumers to determine what is in the typical consumer"s. Which price is most important to the typical customer. Use the data on prices to compute the total cost of the basket: choose a base year and compute the index. The fourth step is to designate one year as the base year, which is the benchmark against which other years are compared. Cpi = 100 * [cost of basket in current year/cost of basket in previous: compute the inflation rate. year] use the consumer price index to calculate the inflation rate. Which is the percentage change in the price index from the preceding period.
