Chapter 25 L Flashcards
Whst does the CPI do? what is it based on?
reports the measure of changing prices. it’s based off a bundle of goods and services that a typical consumer would buy over TWO TIME PERIODS. (roughly 500 goods in the b””@
Is stats Canada information accurate?
it’s an approximation
why does the CPI overestimate price increases? (3) explain each
substitution effects-as the price of one good/service goes up. consumers replace it with a substitute, CPI doesn’t measure this.
intro of new goods- stats can is slow at reporting. years pass before update. they may choose a good at its peak price, and won’t accommodate it’s decrease. (gets added at the mature stage of the life cycle)
changes I’m quality of goods. price may not change , but quality and value will increase. CPI can’t account for the quality.
Problems with a high CPI rate? (inflation rate) Is it overestimated or underestimated?
cost of what gov buys increases. (gov purchases are tied to the index)
bank of Canada may try to reduce inflation by increasing prices of borrowing money. additional costs to consumers for no reason if inflation is at it’s correct level
Overestimated
GDP is what? is it overestimated or underestimated?
rough measure of overall economic activity.
GDP is the sum of the money values of all the final goods and services produced in Canada in one year. FINAL goods, not ones being created.
It’s underestimated
Real vs nominal GDP
Nominal doesnt account for inflation, real does.
Real GDP= Nominal - Inflation
The problem with unemployment figures?
Typically underestimated. they overlook discouraged workers who have dropped out of the labour market. Typically the figures are 1/3 higher than stated.
UNDEREMPLOYMENT=Unemployment rates also don’t deal with the number of people that are overqualified for the jobs they are doing.
What is capacity utilization? and what does it do?
it shows the economic performance of a nation.
it is the the difference between actual ad potential output of a fire or an entire economy. it’s important because it shows if industry’s are close to full capacity.
In terms of measuring economic performance and prosperity, why is productivity?
productivity numbers are supposed to show how fast worker output is growing. it’s the most important indicate of economic well ring bc we can’t increase our standard of living without improvements in productivity.
