ECON 201 Chapter Notes -Nominal Interest Rate, Real Interest Rate, Gdp Deflator

• School: University of Maryland
• Department: Economics
• Course: ECON 201
• Professor: Dr.Neri

Document Summary

Consumer price index: a measure of the overall cost of goods and services bought by a typical consumer. Fix the basket: see which items are more important. Find the prices: for each point in time. Compute the basket"s cost: same quantity, different prices. Choose a base year and compute the index: find inflation / price change ( price of basket of goods and services in current year / price of basket in base year ) x 100. Compute the inflation rate: the percentage change in the price index from the preceding period. Unmeasured quality change: if the quality of a good deteriotates but price remains the same you get less for your dollar: try to account by changing price but quality is hard to measure. The gdp deflator and the consumer price index are used to gage how quickly prices are rising.