Measuring Cost of Living 计量生活成本.pptVIP

24.1.3 The GDP Deflator versus the Consumer Price Index The GDP deflator reflects the prices of all goods and services produced domestically, whereas... …the consumer price index reflects the prices of all goods and services bought by consumers. 24.1.3 The GDP Deflator versus the Consumer Price Index The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year (only occasionally does the BLS change the basket)... …whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. Figure 2 Two Measures of Inflation 1965 Percent per Year 15 CPI GDP deflator 10 5 0 1970 1975 1980 1985 1990 2000 1995 Copyright?2004 South-Western 24.2. CORRECTING ECONOMIC VARIABLES FOR THE EFFECTS OF INFLATION Price indexes are used to correct for the effects of inflation when comparing dollar figures from different times. 24.2.1 Dollar Figures from Different Times Do the following to convert (inflate) Babe Ruth’s wages in 1931 to dollars in 2007: Table 2 The Most Popular Movies of All Times, Inflation Adjusted Copyright?2004 South-Western 24.2.2 Indexation When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation. 24.2.3 Real and Nominal Interest Rates Interest represents a payment in the future for a transfer of money in the past. 24.2.3 Real and Nominal Interest Rates The nominal interest rate is the interest rate usually reported and not corrected for inflation. It is the interest rate that a bank pays. The real interest rate is the nominal interest rate that is corrected for the effects of inflation. 24.2.3 Real and Nominal Interest Rates You borrowed $1,000 for one year. Nominal interest rate was 15%. During the year inflation was 10%. Real interest rate = Nominal interest rate – Inflation = 15% - 10% = 5% Figure 3 Real and Nominal Interest Rates 1