Macro 24

1. Lecture 24
Macroeconomics

2. Big Mac Index

3. Big Mac Index
Country Currency Price Rate Dollars
Phillipines Peso 140 0.019 $2.66
Vietnam Dong 65000 0.000043 $2.80
China Yuan 20.50 0.15 $3.08
Saudi Arabia Riyal 12 0.265 $3.18
Switzerland Franc 6.5 1.0 $6.50

4. Quiz
You are going on a world vacation. How
many dollars will you need?
1. Hong Kong D 13,000
2. New Zealand D 5,000
3. JapanYen 100,000
4. London 5,000
5. Paris 6,000

5. https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

7. Vacation
Currency Cost Rate Dollars
Hong Kong HK Dollar 13,000 0.128 $1,664
New Zealand NZ Dollar 5,000 0.692 $3,460
Japan Yen 100,000 0.0088 $880
London GB Pound 5,000 1.27 $6,350
Paris Euro 6,000 1.13 $6,780
Total $19,134

8. Arbitrage
Buy low and sell high
Buy here and sell there
Buy today and sell tomorrow

9. Arbitrage
Are the price differences different
than the exchange rate?
If so, buy low and sell high

10. The Law of One Price
Arbitrage closes price gaps
Bid up the low price - Demand
Bid down the high price - Supply

11. Other Things?
1980 2018

12. Time Price Database
1980 2018

13. 1980 2018
$14.99$22.95
Change
Reduced
by 80%
$22.46
Per Hour
$6.85
Per Hour
3.35 Hours 0.67 Hours
5x

14. 1980 2018
$71.98$459.95
Change
Reduced
by 95.2%
$22.46
Per Hour
$6.85
Per Hour
67.1 Hours 3.2 Hours
21x

15. 1980 2018
$62.8$459.95
Change
Reduced
by 95.8%
$22.46
Per Hour
$6.85
Per Hour
67.1 Hours 2.8 Hours 24x

16. 1980 2018
$36.8$399.85
Change
Reduced
by 97.2%
$22.46
Per Hour
$6.85
Per Hour
58.4 Hours 1.6 Hours 36x

17. 5x
21x
24x
36x
1980 2018

18. 2018 8.3 hours 1 day
1980 196 hours 24 days
Reduced
95.8%
187.7
Hours
Saved
24x

19. 1997 2017
Increased by 200%
You only get 1/3 of
a textbook
Time Price
decreased
by 96.0%
You get 25 TVs
TV
College
Textbooks
In the past 20
years textbooks
have become 75
times more
expensive relative
to TVs
25 ÷ .33 = 75

22. This universe
is finite, its
resources,
finite… if life is
left
unchecked,
life will cease
to exist. It
needs
correcting.

23. Paul
Ehrlich

24. By 1985 enough
millions will have
died to reduce the
earth's population to
some acceptable
level, like 1.5 billion
people.
I would take even
money that England
will not exist in the
year 2000.

25. Society needs
rescaling –
we’ve got to
reduce the
size of the
entire human
enterprise.

26. Julian
Simon
(1932-1998)

27. The ultimate
resource is people—
especially skilled,
spirited, and hopeful
young people
endowed with liberty
—who will exert their
wills and
imaginations for
their own benefits,
and so inevitably
they will benefit the
rest of us as well.

28. Is there a
relationship
between prices
and population?

29. Change
in
Prices
Change in Population
Both Predicted a Relationship
Ehrlich
Simon
One was right
Abundance
Scarcity

30. The Bet

31. Copper Chromium Nickel Tin Tungsten
1980 - 1990
Fell by 57.6 percent
The Bet

32. SimonProject

33. Aluminum
Banana
Barley
Beef
Chicken
Coal
Cocoa
Coconut oil and copra
Coffee
Copper
Cotton
Crude oil, average
Fertilizer
Fish meal
Gold
Groundnuts and oil
Hides
Iron ore
Lamb
Lead
Liquefied natural gas
Logs
Maize
Natural gas, Europe
Natural gas, U.S.
Nickel
Orange
Palm oil
Platinum
Plywood
Pork
Pulpwood
Rapeseed oil
Rice
Rubber
Salmon
Sawnwood
Shrimps, Mexican
Silver
Sorghum
Soybeans, soybean oil and meal
Sugar
Sunflower oil
Tea
Tin
Tobacco
Uranium
Wheat
Wool
Zinc
Commodities

34. Prices
Nominal
Real
Time

35. Money
Price
Time
Price

37. -100%
-75%
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Simon Commodity Database Price Changes
Nominal Prices Real Prices Time Prices Population
Nominal Prices 62.7%
Population 69.3%
Real Prices -36.3%
Time Prices -64.7%

38. Year
Nominal
Price
Deflator
2017
Real Price
Hourly
Rate
Time
Price
Index
2017 =
100
% ∆ Index
1980 = 1
Multiplier
Index
1980 = 1
1980 $172.73 39.13 $441.44 $3.08 143.1 440.2 1.000 1.000
1981 $174.96 42.78 $408.99 $2.85 143.5 441.4 1.003 0.997
1982 $160.36 45.43 $352.96 $2.62 134.9 414.8 0.942 1.061
1983 $157.42 47.21 $333.42 $2.53 131.5 404.6 0.919 1.088
1984 $152.33 48.90 $311.53 $2.50 124.6 383.1 0.870 1.149
1985 $135.83 50.47 $269.14 $2.51 107.3 329.9 0.750 1.334
1986 $114.92 51.48 $223.23 $2.87 77.9 239.6 0.544 1.837
1987 $112.90 52.79 $213.85 $3.13 68.3 210.2 0.478 2.094
1988 $145.20 54.64 $265.75 $3.33 79.7 245.3 0.557 1.795
1989 $169.24 56.77 $298.11 $3.31 89.9 276.6 0.628 1.591
1990 $135.52 58.87 $230.20 $3.54 65.0 200.1 0.454 2.200
1991 $128.67 60.83 $211.53 $3.57 59.2 182.0 0.414 2.418
1992 $151.20 62.21 $243.04 $3.66 66.4 204.2 0.464 2.155
1993 $140.24 63.69 $220.18 $3.59 61.4 188.7 0.429 2.332
1994 $149.73 65.05 $230.18 $3.72 61.8 190.2 0.432 2.315
1995 $176.98 66.41 $266.50 $4.00 66.6 204.9 0.465 2.148
1996 $207.60 67.62 $306.99 $3.96 77.4 238.2 0.541 1.848
1997 $159.48 68.78 $231.87 $3.83 60.5 186.0 0.422 2.367
1998 $126.13 69.52 $181.43 $3.74 48.6 149.3 0.339 2.948
1999 $112.04 70.59 $158.73 $3.77 42.1 129.4 0.294 3.402
2000 $114.09 72.19 $158.04 $3.77 42.0 129.1 0.293 3.411
2001 $126.81 73.84 $171.73 $3.62 47.5 146.0 0.332 3.015
2002 $148.08 74.98 $197.50 $3.66 54.0 166.0 0.377 2.652
2003 $146.14 76.47 $191.11 $3.99 48.0 147.5 0.335 2.985
2004 $156.88 78.57 $199.68 $4.32 46.2 142.1 0.323 3.098
2005 $152.35 81.10 $187.86 $4.49 41.9 128.8 0.293 3.417
2006 $192.04 83.59 $229.74 $4.66 49.3 151.5 0.344 2.904
2007 $255.21 85.81 $297.40 $5.06 58.8 180.7 0.411 2.436
2008 $326.03 87.51 $372.58 $5.39 69.2 212.7 0.483 2.069
2009 $224.07 88.17 $254.14 $5.02 50.7 155.8 0.354 2.825
2010 $223.58 89.24 $250.53 $5.38 46.6 143.3 0.326 3.071
2011 $316.26 91.09 $347.21 $5.79 59.9 184.3 0.419 2.388
2012 $313.24 92.76 $337.68 $5.75 58.7 180.5 0.410 2.439
2013 $312.25 94.26 $331.26 $5.76 57.5 176.8 0.402 2.490
2014 $284.89 95.95 $296.91 $5.75 51.6 158.7 0.361 2.773
2015 $204.45 96.99 $210.79 $5.33 39.6 121.6 0.276 3.618
2016 $166.63 98.23 $169.64 $5.29 32.1 98.7 0.224 4.460
2017 $174.20 100.00 $174.20 $5.36 32.5 100.0 0.227 4.402
Wheat
SimonProject
Sources: WorldBank, BEA, OEDC
y = -6.7289x + 341.29
R² = 0.63175
0
50
100
150
200
250
300
350
400
450
500
Wheat
Time Price Index
2017 = 100

39. Truth Burst Forth in
Radiant Light
The Astonishing Abundance
of Lighting
Since the Restoration

40. Let There Be Light

41. 58 Hours

42. 41.5 Hours
1750 B.C.

43. 3 Hours
1800

44. 45 Minutes
1883

45. 49 Seconds
1920

46. .43 Seconds
1992

47. .16 Seconds
2010

48. 2000 BC 1000 BC 0 1000 AD 2000 AD
Light Index
2000BC =1
0
250,000
500,000
750,000
1,000,000
1,250,000
1,500,000

49. Year Technology Labor Price
(1,000 lumen hours)
Open Fire 58 hours
1750
B.C.
Oil Lamp 41.5 hours
1830 Tallow Candle 3 hours
1883 Carbon Filament Lamp 45 minutes
1920 Tungsten Filament Lamp 49 seconds
1992 Compact Fluorescent .43 seconds
2010 Light-Emitting Diode .16 seconds

50. The time to create one
hour of light in 1820
will now produce 135,000
hours