Ch 24

Chapter 24 wasn’t too hard to understand, but it did introduce new concept and discusses economic well-being more in depth. The chapter was about measuring the cost of living, and focused on consumer price index. Consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. You measure it by dividing the price of basket of goods and services in current year by the price of basket in base year multiplied by 100, and get the changes in the cost of living. Calculating the CPI also helps in finding the inflation rate: subtracting the CPI in year 1 from the CPI in year 2, and dividing by the CPI in year 1 and multiplying by 100. Measuring the cost of living can be difficult because the CPI ignores the possibility of consumer substitution and does not reflect the increase in the value of the dollar that arises from the introduction of new goods. The chapter goes on to compare the CPI to the GDP deflator; the first difference is that the GDP deflator reflects the prices of all goods and services produced domestically, and the consumer price index reflects the prices of all goods and services bought by consumers. The chapter also introduced inflation and how one figures out the actual value of dollars, in comparison between years and interest rates. Inflation can also cause the government to index wages and such.