EC250 Lecture Notes - Lecture 3: Gdp Deflator, Frictional Unemployment, Structural Unemployment
Document Summary
How to construct the cpi: survey consumers to determine composition of the typical consumer"s basket of good, every month, collect data on prices of all items in the basket; compute cost of basket, cpi in any month equals. The cpi uses fixed weights, so it cannot reflect consumers" ability to substitute toward goods whose relative prices have fallen. The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the cpi, because the cpi uses fixed weights. Quality improvements increase the value of the dollar, but are often not fully measured. Research from the bank of canada suggests that the overall estimated bias in the canadian cpi is about. Estimates for the bias in the canadian cpi is lower than the united states where the bias is estimated to be around 1%. Prices of imported consumer goods: included in cpi, excluded from gdp deflator.
