Chapter 24

This chapter was a continuation of the previous chapters. There were many references to GDP and how the number is related to a lot of other figures. One important figure measured in the chapter was Consumer Price Index, or CPI. Consumer Price index basically describes the cost of goods bought by costumers over a set period of time, generally a few years. Consumer Price Index is another convenient way to measure the inflation rate, and CPI often has a direct relationship with GDP. The Consumer Price Index is a good way to show how the overall well being of consumers but it has flaws, just like GDP and every other measurement tools. There might not be closets of dead bodies as is the case with GDP but there are flaws nonetheless. The chapter also expanded on “real” and “nominal” interest rates. A nominal interest rate is the data that is most frequently distributed to the public. Nominal interest rates do not include correction for the effects of inflation. Real interest rates seem more accurate if you want to consider inflation and how your purchasing power is rising. Just as the real and the nominal GDP show the apparent and the actual growth, there are real and nominal interest rates to also show the apparent value and the actual value. The real interest rate is calculated simply by subtracting the inflation rate from the nominal interest rate.