ECN 204 Lecture Notes - Gdp Deflator, Nominal Interest Rate, Real Interest Rate

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Consumer price index: a measure of the overall cost of the goods and services bought by a typical customer (stats canada computes this every month) How the cpi is calculated: determine the basket: determine which prices are most important to the typical customer. Inflation rate in year 2= cpi in year 2 cpi in year 1/cpi in year 1 x 100. Core inflation: the measure of the underlying trend of inflation. Cost of cpi basket in 2009 = ( x 10) + ( x 20) = . Cpi in 2009= 100 x (/) = 125. Cost of cpi basket in 2010 = ( x 10) + ( x 20) = . Cpi in 2010= 100 x (/) = 175. When prices change from one year to the next, they do change proportionately. Consumers substitute towards goods that have become relatively less expensive.

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