Weekly Notes Feb 8- Feb 12
Weekly Notes Feb 8- Feb 12 ECON 104
Popular in Introductory Macroeconomic Analysis and Policy, Goffe
verified elite notetaker
Popular in Department
This 3 page Class Notes was uploaded by Ethan Ezratty on Sunday February 14, 2016. The Class Notes belongs to ECON 104 at Pennsylvania State University taught by Goffe in Winter2015. Since its upload, it has received 50 views.
Reviews for Weekly Notes Feb 8- Feb 12
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 02/14/16
▯ Part E: The Consumer Price Index (CPI) ▯ -Question: For the sake of this question, say hat your parents now earn $100,000 and that in 2045 you’ll earn $200,000. Is this enough to say that in a material sense ▯ that you’ll be better off? ▯ -No ▯ -The Consumer Price Index (CPI) ▯ -The CPI can be used to remove inflation from nominal prices & wages ▯ Definition: Nominal (money) price or wage- how many dollars it takes to buy something or hire someone ▯ Definition: Real price or wage- nominal value with inflation explicitly removed – ex: real and nominal GDP ▯ The CPI is best thought of as a measure of costs versus a base year ▯ ▯ GDP Deflator vs. the CPI (02/09/16) ▯ -Both Measure the price level For consumers :CPI For whole economy: GDP deflator ▯ -Extensive overlap Consumption © is a 69% of GDP ▯ -Move in quite similar ways (usually ▯ -Over the last year Inflation (GDP Deflator)= 0.9% Inflation (CPI)= 0.7% (deflation in 2009) ▯ -Different Values: 110 vs. 237.85 ▯ -constructed in different ways ▯ -Which to use? ▯ ▯ Inflation vs. the Price Level ▯ -Question: Say that inflation fell. Then the Price level (measured by the CPI or GDP deflator) would be sure to fall as well. FALSE Ex: inflation: 4% -> 2% o CPI: 100-> 104-> 106 (104-100) x100 =44 o 100 o this is disinflation=less inflation o deflation: CPI declines (100 -> 98) ▯ Part F: Real Prices -Question: After taking inflation into account, which had the most ticket sales? o Avatar in 2010 - $2,782 mil (2.2 bil) o Titanic in 1998 - $ 2,186 mil o ANSWER IN Nominal Terms: Avatar: $2,782M -Titanic: $2,186 M CPI 2010: 214.55 - CPI 1998: 163.0 ▯ -Real & Nominal (Money) Prices o Question: Most prices we see are ______ and most interest rates are _______. o Answer: Nominal, Nominal o A real price or interest rate removes inflation from a nominal prince in an explicit calculation: subtraction, division, deflating Real Prices: Subtraction Data: Question: Over this period, the real price of gas ______ (i.e. price after taking out inflation). o ANSWER: ROSE o How to calculate: % Change in real price= % Change nominal price- inflation rate 17%= 27% -10% for % change in prices & wages interest rates too usually on an annual basis ▯ Question: The federal (Nominal) min. wage has been at $7.25/ hour since 2009. Over the last year, the real min. wage _______. o ANSWER: FELL o -0.7%= 0%-0.7% Real Prices: Division ▯ Data: ▯ ▯ ▯ ▯ Question: Say that you wanted to put the nominal price of gas from 03/2006 in terms of prices in 01/2011. What would you do? Multiply 3/2006 nominal price ($2.41) by …. ? o Answer: 220/200 o $2.41 x (220/200) = $2.65 o “Division Method:” Convert a nominal price from period 1 to period 2 prices: o nominal price x (CPI1/CPI2)