ECONOM 1015 Lecture Notes - Lecture 2: Capital Good, Starbucks
Document Summary
Bls surveys consumers to determine what"s typically consumed. Bls collects data on prices of goods/services typically consumed. Cpi = 100 x cost of basket in current year/cost of basket in base year. In ation = cpi this year - cpi last year/cpi last year x 100% Use prices to compute total cost of the basket current prices/base prices. Gdp de ator = output: all goods produced in the country, regardless of where they are sold. Cpi = consumption: all goods consumed regardless of where they are produced. Substitution bias: not correctly calculated because of substitution affects. Over time, some prices rise faster than others; consumers may substitute goods that become cheaper. Cpi uses a xed basket of good, so it doesn"t account for the substitutions. Therefore, cpi overstates the increase in the cost of living. Starbucks increases the prices of frappes: cpi and gdp de ator both rise.
