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Chapter 6

Principles of Macro [Mankiw, Kneebone, McKenzie] - Chapter 6 Notes

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ECON 2020U
Peter Cheung

ECON2020Chapter 6 Notes MEASURING THE COST OF LIVING Consumer Price Index CPIHow the CPI is CalculatedCPI and Inflation Rate are calculated in 5 steps1 Determine the BasketIn order to calculate the CPI a basket has to be created holding the most important and widelypurchased products by consumers in a given country If the typical consumer purchases more X than Y X the price of X is more important than the price of YData collected regarding the associated weights of each product value is significant in calculating CPI and Inflation2 Find the PricesCPI and Inflation are only concerned with the cost of living and not so much the quantity produced or soldPrices must be current or accurate to the time period being evaluated due to the nature of the measurement3 Compute the Baskets CostA base year must be chosen to compute the baskets cost becau
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