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2014-0127 EC 102 Notes Class 5.docx

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CAS EC 102
Neil Watson

EC 102 Class 5  GDP deflator: The nominal GDP divided by the real GDPand then multiply by 100.  P stands for the price level (measured by CPI or GDP Deflator)  π stands for inflation o π = percentage change in P or %ΔP o Computed by subtracting GDPdeflator of earlier year from later year, dividing by earlier year and then multiply by 100  Consumer Price Index (CPI) o Measures changes in the prices of things that an average consumer buys o The most closely watched indicator of what is happening to prices o Released in the middle of every month o Uses:  Tracks changes in the typical household’s cost of living  Adjusts many contracts for inflations • If cost of living increase 3%, pay increases by 3%  Allows comparisons of dollar amounts over time  Calculation of CPI o Surveyors
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