ECON 1BB3 Lecture 9: lecture nine

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

Using cpi y example: your father earned ,000 in 1982. What is this salary worth in 2010 dollar. Problem with cpi y there are 3 problems with cpi: substitution bias: ignores consumer substitution; overstates inflation. Introduction of new goods: cpi is based on a fix basket of goods and services; overstates inflation: unmeasured quality change: some price changes reflect quality improvements; overstates inflation. For some racquet sports there have been increases in the size of the racquets and the methods and materials used for making them make have improved. What problem in the construction of the cpi is this most relevant to. Introduction of new goods: substitution bias, unmeasured quality change. Cpi vs. gdp deflator: cpi- goods and services brought by typical consumers. Gdp deflator- reflects prices of all goods and services produced domestically: 2. Price of bananas goes up: cpi goes up, gdp no change, gdp deff goes up, cpi no change, both goes up.