Recommended
More Related Content
What's hot
What's hot (14)
Similar to Macro 5
Similar to Macro 5 (20)
More from Gale Pooley
More from Gale Pooley (20)
Recently uploaded
Recently uploaded (20)
Macro 5
- 3. Questions?
- 8. Measuring the Cost of Living
- 9. Measuring the Cost of Living GDP Deflator Consumer Price Index Interest Rates
- 11. GDP increases Are we making more stuff, or are prices going up?
- 12. Nominal vs. Real
- 14. When you have lines waiting to buy your product, you can do two things: make more, or raise prices
- 18. Inflation Cause: Printing money faster than making goods Effect: Rising prices
- 20. Real will always have a base year
- 22. Pizza Soda Year Price Qty Total Price Qty Total Total Total % Change 2010 $5 100 $500 $1.00 50 $50 $550 2011 $6 134 $804 $1.50 40 $60 $864 57.1% 2011* $5 134 $670 $1.00 40 $40 $710 29.1% 2012 $10 150 $1500 $2.00 30 $60 $1,560 80.6% 2012* $5 150 $750 $1.00 30 $30 $780 9.9% * Prices adjusted to 2010 Rates Real versus Nominal GDP
- 23. GDP Deflator Nominal GDP Real GDP= x 100
- 24. GDP Deflator $1,560 $780= x 100 = 200 Prices have doubled
- 25. If the the GDP Deflator is 178 and a Pizza cost $15, what was the price in the base year? $15 ÷ 1.78 = $8.43
- 26. GDP Inflation Rate GDP DeflatorYear 2 - GDP DeflatorYear 1 GDP DeflatorYear 1= x 100
- 27. If the the GDP Deflator is 178 in 2010 and 192 in 2011, what was the rate of inflation? 192-178 178 x 100 =7.86%
- 29. CPI Consumer Price Index The market value of a typical basket of goods.
- 32. CPI Consumer Price Index The market value of a typical basket of goods.
- 33. Measure CPI - Five Steps 1. Select items for Basket 2. Find Prices 3.Total Cost 4. Pick BaseYear and compute Index 5. Compute Inflation Rate
- 34. What’s in the CPI’s Basket? ! Food and beverages ! Tobacco ! Clothing and footwear ! Housing ! Water & fuels ! Furnishings and house repairs ! Health ! Transportation ! Communication ! Leisure ! Education ! Restaurant & hotels ! Miscellaneous The basket will vary from country to country. The following is an example of the basket in Lebanon
- 35. select items
- 36. find prices
- 37. total the cost
- 38. pick base year and compute index
- 39. CPI Total Cost thisYear Total Cost in base year x 100
- 40. CPI Inflation Rate CPIYear 2 - CPIYear 1 CPIYear 1 = x 100
- 41. Year Total CPI Inflation 2010 522 100.0 2011 544 104.2 4.2% 2012 532 101.9 -2.2% 2013 560 107.3 5.3% 2014 577 110.5 3.0% 2015 600 114.9 4.0%
- 42. Converting to Today Price level today Price level in prior year Amount in prior year X
- 43. I earned 100,000 in 2010 and the CPI was 175. In 2014 I earned 150,000 and CPI was 250. What year was I better off?
- 44. Year CPI Income 2010 175 100,000 2014 250 150,000 %Chg 42.9% 50.0%
- 45. Year CPI Income Income÷ CPI 2010 175 100,000 571 2014 250 150,000 600
- 46. Converting to Today Price level today Price level in prior year Amount in prior year X
- 47. Year CPI Income 2010 175 100,000 2014 250 150,000 %Chg 42.9% 50.0% Adjusted to CPI 142,857
- 50. Problems with CPI 1. Substitution 2. New goods 3. Changes in Quality
- 52. New Goods 1983
- 53. New Goods Added in 1998
- 54. Quality 2007 - $600 2017 - $600