ECON 2020U Chapter 6: Principles of Macro [Mankiw, Kneebone, McKenzie] - Chapter 6 Notes
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Cpi and inflation rate are calculated in 5 steps: (1) determine the basket. In order to calculate the cpi, a "basket" has to be created "holding. " the most important and widely-purchased products by consumers in a given count ry. If the typical consumer purchases more "x" than "y", "x" the price o f "x" is more important than the price of "y" Data collected regarding the associated "weights" of each product va lue is significant in calculating cpi and inflation (2) find the prices. Cpi and inflation are only concerned with the cost of living and not so much the quantity produced or sold. Prices must be current or accurate to the time period being evaluate d due to the nature of the measurement (3) compute the basket"s cost. A base year must be chosen to compute the basket"s cost because infl ation changes with time.