The cost of living over time is measured by the consumer price index, which is a measure of the overall cost of the goods and services bought by a typical consumer. This CPI is measured monthly by the Bureau of Labor Statistics in these five steps: fixing the basket (determining which prices are most important to the typical consumer), finding the prices of the goods in the basket, computing the basket's cost (the prices change, but the quantity does not), choosing a base year and computing the index, and computing the inflation rate.
This calculation is used for specific metropolitan areas within the country, some narrow categories of goods and services, and calculating the producer price index, which can be used to predict changes in the consumer price index.
The problems with CPI are the substitution bias, the introduction of new goods, and unmeasured quality change.
The GDP deflator and CPI are different in that the GDP deflator reflects the price of all goods and service produced domestically, whereas the CPI reflects the prices of all goods and services bought by consumers (including foreign goods). Also, CPI has a fixes basket of goods compared to GDP that compares the price of currently produced goods and services.
No comments:
Post a Comment