Chapter 24

While chapter 23 measured GDP and income, chapter 24 focused more on the cost of living and the calculations that come with it. The consumer price index is one of the main things that helps measure the everyday costs for consumers based on certain factors, but can be a bit misleading at times due to the fact that certain factors that can change messes with it. Due to it being calculated with the conditions that the number of items stay the same, it is not realistic at times because of how consumers would react to an increase in price of one good while the other stays the same, giving the illusion that cost of living has gone up significantly even though there are other items that might be available to buy and use. It also doesn't take into account how the introduction of a new good can play a role in what the consumer will now buy after it has been introduced. GDP deflator and consumer price index are similar in what they measure, but differ due to one focusing on the goods made in the nation (GDP), and the other on the prices out on the market and the costs to consumers (CPI). Inflation has to be taken into account in order for both to be useful as the different values of money in different periods would cause confusion as to how CPI would help with anything.