You are trying to decide whether to use the GDP deflator or the CPI to calculate the inflation rate in an economy: You will decide to use the CPI if you want to make sure you include all goods and services captured in GDP you are only concerned about prices that firms face you are only concerned about prices consumers face you want to make sure you include all transactions that take place in the economy
Added by Virginia L.
Step 1
If you do, then you should use the GDP deflator, as it accounts for all goods and services produced in an economy. Show more…
Show all steps
Your feedback will help us improve your experience
Joram Herman and 56 other Macroeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
A number of statistics are computed to measure the price level, such as the GDP deflator and the CPI. The choice of which of these measures to use depends in many cases on the specific question in which you are interested. For each of the following situations, state whether the CPI or GDP deflator is a more appropriate measure to use and explain why the statistic is preferred. (a) You are interested in looking at the impact of higher prices of imported oil on the overall cost of living. (b) The government is interested in whether increases in defense spending are affecting the price level. (c) An economic consulting firm is investigating the impact on the aggregate price level of more computers and electronic technology used in production.
Andrew D.
Require the following discussion. The Consumer Price Index (CPI) indicates the relative change in price over time for a fixed basket of goods and services. It is a cost-of-living index that helps measure the effect of inflation on the cost of goods and services. The CPI uses the base period 1982-1984 for comparison (the CPI for this period is 100). The CPI for January 2013 was $230.28 .$ This means that $\$ 100$ in the period $1982-1984$ had the same purchasing power as $\$ 230.28$ in January 2013. In general, if the rate of inflation averages $r$ percent per annum over $n$ years, then the $\mathrm{CPI}$ index after $n$ years is If the current CPI is 234.2 and the average annual inflation rate is $2.8 \%,$ what will be the CPI in 5 years?
Exponential and Logarithmic Functions
Financial Models
The Consumer Price Index (CPI) provides a means of determining the purchasing power of the U.S. dollar from one year to the next. Using the period from 1982 to 1984 as a measure of $100.0,$ the CPI for selected years from 1995 through 2007 is shown in the table. To use the CPIto predict a price in a particular year, we set up a proportion and compare it with a known price in another year: $$\frac{\text { price in year } A}{\text { index in year } A}=\frac{\text { price in year } B}{\text { index in year } B}$$ $$ \begin{array}{|c|c|} \hline \text { Year } & {\text { Consumer Price Index}} \\ {1995} & {152.4} \\ {1997} & {160.5} \\ {1999} & {166.6} \\ {2001} & {177.1} \\ {2003} & {184.0} \\ {2005} & {195.3} \\ {2007} & {207.3} \\ \hline \end{array} $$ Use the CPI figures in the table to find the amount that would be charged for using the same amount of electricity that cost $\sin 1995 .$ Give your answer to the nearest dollar. in 2007
Linear Equations and Inequalities in One Variable
Ratio, Proportion, and Percent
Recommended Textbooks
Principles of Economics
Macroeconomics
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD