ECON-200 Lecture Notes - Lecture 7: Nominal Interest Rate, Gdp Deflator, Real Interest Rate

• School: Diablo Valley College
• Department: Economics
• Course: ECON-200
• Professor: Sorce

Document Summary

Economists and policymakers monitor both the gdp deflator and the consumer price index to gauge how quickly prices are rising. There are two important differences between the indexes that can cause them to diverge. First, the gdp deflator reflects the prices of all goods and services produced domestically, whereas The consumer price index reflects the prices of all goods and services bought by consumers. Second, the consumer price index compares the price of a fixed basket of goods and servicesto the price of the basket in the base year Whereas the gdp deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. Correcting economic variables for the effects of inflation. Price indexes are used to correct for the effects of inflation when comparing dollar figures from different times.