ECN 001B Lecture Notes - Lecture 2: Gdp Deflator, Nominal Interest Rate, Real Interest Rate
Document Summary
In macroeconomics, everything is an estimate, so there will always be a % error. We don"t know for certainty (100%), there is ambiguity. Gdp deflator measures the price level in an economy of a country. We take the % change as a measure of inflation. Consumer price index (cpi) measures the typical consumer"s cost of living. Better measures the cost of living (than the gdp deflator) for you and i. The basis of cost of living adjustments (colas) in many contracts and in social security (sometimes rent too) Built in to a lot of things in our society. How the cpi is calculated (estimate: fix the basket. The bureau of labor statistics (bls) surveys consumers to determine what"s in the typical consumer"s shopping basket. What"s in the basket is fixed; once you decide what"s going to be in the basket, you can"t change it.
