ECN 204 Lecture : Chapter 6.docx
Document Summary
Govt spending is exogenous and gdp that is the endogenous. Exogenous variables changes affect the changes in endogenous variables. Consumers price index (cpi)- measures the typical consumers cost of living. Determine the basket: stats canada surveys what consumers buy. Find the prices: data on prices of all the goods in basket. Compute the basket"s cost: use data on prices to compute the total cost of the basket. Choose a base year and compute the index: cost of basket in current year/cost of basket in base year. Compute the inflation rate: inflation rate= percentage change in cpi from year to year: Cpi this year cpi last year/cpi last year. The cpi in the base year is always 100. Commodity substitution bias- the cpi overstates increases in the cost of living. Introduction to new goods- increase in variety therefore the consumer has options to find products that are closer to meet their needs.