ECON 1BB3 Chapter Notes - Chapter 5: Savings Account, Gdp Deflator, Interest Rate
16 Mar 2013
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ECON 1BB3 Full Course Notes
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Example: your father earned ,000 earned in 1982. What is this salary worth in 2012 dollars: cpi (1982) = 61. 8, cpi (2012) = 116. 3, base year cpi is always 100, answer: 116. 3/61. 8 = x/40 000, x = 116. 3 x 40 000 / 61. 8 = 275. Substitution bias ignores consumer substitution; overstates inflation. Introduction of new goods - cpi is based on a fix basket of goods and services; overstates inflation. Explanation of why tv prices plummet after a few years. Unmeasured quality change some prices changes reflect quality improvements; overstates inflation. Cpi goods and services bought by typical consumers. Gdp deflator reflects prices of all goods and services produced domestically. Gdp deflator quantities change, price stay fixed. Ration cost of basket current year / cost of basket base year (cpi) Both give different measures of inflation, more about relevancy than accuracy. What matters to our personal life is cpi.
