Journaling of Chapter 24: Measuring the Cost of Living

Chapter 24, Measuring the Cost of Living, details how economists measure the overall price level in the macroeconomy. It shows how to generate a price index and how to use a price index to compare dollar figures from different times. It also talks about how to adjust interest rates for inflation. There are also cons to using the consumer price index as a way to measure the cost of living. Both consumer price index and gross domestic product deflator is a measure of the overall price level. Consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. The cost of living is the amount by which incomes must rise in order to maintain a constant standard of living. In order to compare income from different years you must correct income for inflation. To do this, you use the formula: Value in year X dollars = Value in year Y dollars × (CPI in year X/CPI in year Y). It also discussed the differences between real interest rate, the nominal interest rate, and the inflation rate.

I would give this chapter a difficulty rating of 2 out of 3. This chapter was strongly related to the things mentioned in chapter 23 as both deal with how economists measure output and prices in the macroeconomy. However, I am still confused about indexation so it would be helpful if we went over that during class.