Monday
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 8 The Data of Macroeconomics Chapter 24 of 36 Measuring The Cost of Living Section 8 of 15 … Three widely acknowledged difficult to solve problems with the consumer price index (CPI) are -1- Substitution bias -2- Introduction of new goods bias -3- Unmeasured quality change bias … -3- Unmeasured quality change bias If the quality of a good increases from one year to the next and its price remains the same, the value of a consumer’s dollar increases because you are getting a better good for the same money. The Bureau of Labor Statistics (BLS) attempts to account for quality change when the quality of a good in the basket changes. In effect, the BLS tries to compute the price of a constant-quality basket of goods. Quality changes are problematic because dollar value of the changes is hard to measure. … Among economists there is much on-going debate over how severe these three measurement problems are and ...