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That was a very informative explanation. Thanks. There was a sentence that sounded really interesting, but which I didn't understand: > CPI doesn't account for
by 6gvONxR4sf7o 6y ago
That was a very informative explanation. Thanks. There was a sentence that sounded really interesting, but which I didn't understand:
> CPI doesn't account for the ability of consumers to substitute inferior goods, but GDP doesn't account for the sacrifice involved in doing so.
Would you be down to unpack how that works? I'm intrigued.
- jjoonathan 6y agoThis page has a specific example: https://www.economicsdiscussion.net/differences-between/difference-between-cpi-and-gdp-deflator/11320 https://www.economicsdiscussion.net/differences-between/diff... Keep in mind that their example chose a very gentle substitution (apples and oranges) while my example chose a very extreme substitution (housing and clean water for tents and unfiltered water). A nontrivial amount of your opinion-formation should include deciding where typical substitutions (e.g. moving back in with parents) actually lie on that scale. Of course, this choice is peanuts compared to the choice of whether or not you lump high income earners in with low income earners. Hence my focus on the Elysium test.
- 6gvONxR4sf7o 6y agoGreat link. So a GDP deflator corrects for what our current equilibrium would have cost back then, while the CPI deflator corrects for what our equilibrium from back then would cost now?