ECON 105 Lecture Notes - Lecture 8: Nominal Interest Rate, Ex-Ante, Real Interest Rate
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ECON 105 Full Course Notes
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Chapter 6, the price level and the inflation rate. buys less than it did 20 years ago. We observe a general rise in prices (inflation), but not all prices rise at the same rate. Some goods go up, some stay where they are, and some even go down. We would like to have a single number (a price index) that measures typical prices. We have 2 main price indices: gdp deflator: weighs by production, in current year, cpi: weighs by a fixed market basket that represents typical household purchases. (doesn"t have units) Cpi(2010) = (cost of basket in current year) / (cost of basket in base year) x 100. Inflation rate = growth rate of price index. Inflation (by gdp deflator) = (140 - 100) / 100 x 100% Inflation (by cpi) = (141 - 100) / 100 x 100% We also have a few other price indices: regional cpi, cpi for specific categories of goods, core cpi.