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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:

To determine

To describe: A situation where using the CPI would be more appropriate than using the GDP Deflator to convert Nominal GDP to Real GDP.

Explanation

Let’s consider the situation in a private sector firm where indexing of wages is done to adjust to the inflation. If we adjust the minimum wages of consumer to inflation then the consumer’s disposable income rises and they would be able to consume or purchase more goods and services from the market. This would result in an increase in the consumer satisfaction which in turn would raise the cost of living of these consumers. This is the measure of CPI...

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