The Candy Price Index and the Gumball Domestic Product

Teaching Economics With Analogies — Practical Examples (Franz)
May 29, 2020

The “Candy Price Index” by Hazlett and Hill (2003) introduces students to the biases of the Consumer Price Index (CPI). This paper extends their assignment to also calculate real wages, real interest rates, real and nominal Gross Domestic Product (GDP), and the GDP deflator. Thus, it is well suited to complete the sequence of classes on measuring macroeconomic activity. In addition, the assignment provides insight into the differences between the GDP deflator and the CPI that result from their equations and not the basket of goods. Thus, this activity is a worthwhile starting point to discuss the differences between the CPI and GDP deflator.

Stefan Ruediger and Tatiana Batova