ECON 1040 Lecture Notes - Lecture 6: Real Interest Rate, Nominal Interest Rate, Gdp Deflator
Document Summary
Inflation rate= cpi this year- cpi last year/ cpi last year x 100. Increases variety, allows consumers to find products that more closely meet their needs. Improvements in the quality of goods in the basket increase the value of each dollar. The cpi overstates increases in the cost of living. Each of these problems causes the cpi to overstate cost of living increases. The bls has made technical adjustments but the cpi probably still overstates inflation. Social security payments and many contracts have cola"s tied to the cpi. Uses basket of currently produced goods and services. A dollar amount is indexed for inflation if it is automatically corrected for inflation by law or in a contract. The interest rate not corrected for inflation. The rate of growth in the dollar value of a deposit or debt. The rate of growth in the purchasing power of a deposit or debt.
