ECON 203 Lecture Notes - Lecture 2: Gdp Deflator, European Cooperation In Science And Technology, Real Interest Rate

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ECON 203 Full Course Notes
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Gdp deflator (useless unless compared to other things) Cpi consumer price index: measure of prices consumers would be willing to pay. Step 1: survey consumers to determine a fixed basket of goods. Step 2: find the price of each good in each year. Step 3: compute the cost of the basket of goods in each year. Step 4: choose one year as a base year (2001) and compute the consumer. Consumer price index (/) x 100 = 100 (/) x 100 = 175 (/) x 100 = 250. Step 5: use the consumer price index to compute the inflation rate from. Inflation rate (175 100)/100 x 100 = 75% (250 175)/175 x 100 = 43% 2002: 100 (for base year it"s always 100) Inf rate: 2001: 2002: (142. 86 100)/100 x 100 = 75. 01% Problems with measuring the cost of living: substitution bias. People substitute away from apples to pears cpi is overstated (price of pears has not gone up)

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