Discuss two reasons why the gdp deflator gives a different rate of inflation than the cpi does
Answers
The GDP deflator uses as a basket of all final goods and services produced in the domestic economy, while the CPI basket includes goods and services purchased by typical consumers. (2) The GDP deflator is a variable weight price index, whereas the CPI is fixed weight price index. 7.Suppose that you lend your roommate $100 for a year at 9 percent nominal interest. a.How many dollars of interest will your roommate pay you at the end of the year? $9 b.If the inflation rate is 5 percent during the year of the loan, what is the real interest rate? 9% – 5% = 4% c.If the inflation rate is 11 percent during the year of the loan, what is the real interest rate? 9% – 10% = –2% d.Explain what it means to have a negative real interest rate. A negative real interest rate means that the return measured in terms of physical goods is negative. Because of inflation, the interest payment is less than the price increase. 4