>8 The Data of Macroeconomics t Measure of inflation Consumer price Index(cPi Current price of base year basket of goods 100 Base year price of base year basket of goods 1×O 。×O 90
The Data of Macroeconomics Measure of inflation Consumer Price Index(CPI) = = Current price of base year basket of goods *100 Base year price of base year basket of goods 90 90 04 90 P Q P Q
>8 The Data of Macroeconomics eXample P90P04Q90Q04 Apple 10201000|2000 P ear 0.81.520002000 Nectarine1.52.520003000 Peach 1.530005000 Banana 1.51 20008000
The Data of Macroeconomics Example P 90 P 04 Q 90 Q 04 Apple 1.0 2.0 1000 2000 Pear 0.8 1.5 2000 2000 Nectarine 1.5 2.5 2000 3000 Peach 1 1.5 3000 5000 Banana 1.5 1 2000 8000
>8 The Data of Macroeconomics CPI VS GDP Deflator 1) GDP includes all the g s produced in the economy: CPi has a basket of some g s 2) GDP deflator includes only domestic products CPI includes imports 3) GDP deflator has a weighted basket of goods CPI has a fixed basket(quantities wont change)
The Data of Macroeconomics CPI vs. GDP Deflator 1) GDP includes all the G & S produced in the economy; CPI has a basket of some G & S 2) GDP deflator includes only domestic products; CPI includes imports. 3) GDP deflator has a weighted basket of goods; CPI has a fixed basket (quantities won’t change)
>8 The Data of Macroeconomics CPI V S. GDP Deflator 3.50E+00 3.00E+00 2.50E+00 2.00E+00 1.50E+00 1.00E+00 5.00E-0 0.00E+00 8888d88s98s99 CPI Ye ear gdp deflator
The Data of Macroeconomics CPI v.s. GDP Deflator 0.00E+00 5.00E-01 1.00E+00 1.50E+00 2.00E+00 2.50E+00 3.00E+00 3.50E+00 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Year CPI GDP deflator
>8 The Data of Macroeconomics CPI may overstate inflation Consumers may substitute away from more expensive goods e.g. 1978-1981US price rose 9. 1%o per year according to the gdp deflator; according to CPl, price rose 11.2%o per year. Why?
The Data of Macroeconomics CPI may overstate inflation Consumers may substitute away from more expensive goods. e.g. 1978-1981 U.S. price rose 9.1% per year according to the GDP deflator; according to CPI, price rose 11.2% per year. Why?