Why do economists use real GDP rather than nominal GDP to gauge economic well-being? Define the GDP deflator.

Question
1. Why do economists use real GDP rather than nominal GDP to gauge economic well-being? Define the GDP deflator.

2. What is the CPI? Which do you think has a greater effect on the consumer price index: a 10 percent increase in the price of chicken, or a 10 percent increase in the price of caviar? Why?

3. Describe the three factors that make the consumer price index an imperfect measure of the cost of living. Then explain how the GDP deflator differs from the CPI.

4. List and describe the determinants of productivity.

5. Explain how a higher savings rate can lead to a higher standard of living. What might deter a policymaker from trying to raise the rate of saving?

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