ECON102 Lecture Notes - Lecture 8: Gdp Deflator, Real Interest Rate, Real Wages

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Joseph Dejuan

Document Summary

It assumes that you are buying the same products in the same quantity even if the market"s demand has shifted. Part of the rise in the price is payment for improved quality and is not inflation: the cpi counts all the price rise as inflation, e. g. Computers are getting cheaper and quality is getting better. Cars are getting better and the price is remaining constant. In the us the overstatement is around 1%. In canada, the cpi overstates the inflation by 0. 6% a year. A bias of 0. 6% is small but over a decade adds up to billions of dollars or additional expenditure. The cpic equals (nominal consumption expenditure real consumption expenditure) 100. Pce deflator is a broader measure of the price level than the cpi because it includes all consumption expenditure. All expenditure (included in the capital of gdp) is accounted for in this index and can provide a more accurate picture.