New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Econ 201 Week 11 (Inflation, GDP)

by: Ekene Tharpe

Econ 201 Week 11 (Inflation, GDP) ECON 201

Marketplace > University of Tennessee - Knoxville > Economcs > ECON 201 > Econ 201 Week 11 Inflation GDP
Ekene Tharpe
View Full Document for 0 Karma

View Full Document


Unlock These Notes for FREE

Enter your email below and we will instantly email you these Notes for Intro Economics: Survey Course

(Limited time offer)

Unlock Notes

Already have a StudySoup account? Login here

Unlock FREE Class Notes

Enter your email below to receive Intro Economics: Survey Course notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Unlock FREE notes

About this Document

In depth CPI information, more on inflation, GDP definition
Intro Economics: Survey Course
Donna Bueckman
Class Notes




Popular in Intro Economics: Survey Course

Popular in Economcs

This 3 page Class Notes was uploaded by Ekene Tharpe on Tuesday March 15, 2016. The Class Notes belongs to ECON 201 at University of Tennessee - Knoxville taught by Donna Bueckman in Fall 2015. Since its upload, it has received 68 views. For similar materials see Intro Economics: Survey Course in Economcs at University of Tennessee - Knoxville.


Reviews for Econ 201 Week 11 (Inflation, GDP)


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 03/15/16
Econ  201  Notes:  Week  10     CPI  Use:   1. Indexation:   a. Automatic  correction  of  inflation  by  contract  or  laws   i. COLA  (cost  of  living  allowances/adjustments)  in  multi  year   labor  contracts   ii. Adjustments  in  federal  income  tax  bracket  and  social  security   payments   2. Compare  Price  Over  Time:  Amount  in  “today’s”  dollars   a. CPI  can  adjust  figures  (costs)  so  they  can  be  compared  over  time     i.     Amount  in   Amount  in  T   CPI  (Price  level)  “today”     “today’s”     dollars   dollars   CPI  in  year  T         Example:  Comparing  price  (GAS  PRICES)       YEAR   COST  PER  GAL   CPI   1981   $1.42   88.5   2005   $2.50   196.4     1981  cost  of  gas  in  2005  (“today’s”)  dollars:             =    $1.42  X    (196.4  /  88.5)     3. Real  vs.  Nominal  Interest  Rates:   a. Nominal  Interest  Rate:     i. Interest  NOT  corrected  for  inflation   ii. Rate  of  growth  measured  in  Face(dollar)  value  of  a  deposit  or   debt   b. Real  Interest  Rate     i. Corrected  for  inflation   ii. Rate  of  growth  in  measured  in  purchasing  power  of  a  deposit   or  debt           Real  Interest  Rate     Nominal  Interest  Rate   Inflation  Rate           Example:  $1000  Deposit  for  1  Year:   • Nominal  Interest  Rate=  9%  ($90  by  the  end  of  the  year   • Inflation+  3.5%  during  that  year   • Real  Interest  Rate   o =(Nominal  interest  rate)-­‐(Inflation  rate)   o 9%  -­‐  3.5%  =  5.5%    *Purchasing  Power  for  $1000  deposit  has  had  5.5%  ($55)  growth!       CPI  Limits:   1. Issue  Measuring  Cost  of  Living   a. Substitution  bias:  prices  change,  we  change   b. However,  the  Basket’s  fixed:  doesn’t  catch  all  the  changes   2. New  Good  Introduced   a. Not  included  in  CPI  since  new   b. Quality  change  not  measured     i. “New  and  Improved”  =  higher  prices  (price  change  cant  be   measured  by  CPI)   CPI  Limit  Effects:   • Inflation  is  overstated     o BLS  adjustments  can  be  made   ⋅  CPI  still  overstate  inflation  by  Social  Security  per  year   • Payment  indexed  to  CPI  (what’s  happening  trend  wise)   o Social  Security     o COLA’s     Cost  of  Inflation:          “Inflation  erodes  real  incomes”=  FALSE     • Inflation:    the  general  increase  in  prices  of  things  people  wish  to  buy/sell   o Cause  CPI  and  nominal  wages  to  increase  together  over  long  term       The  Cost:   • Misallocation  of  resources  create  relative  price  variability   o Not  all  prices  rise  at  the  same  time  “blurred  price  signals”   • Inconvenience  and  inconvenience     o Inflation  alters  “yardstick”(Unit  of  Account),  thus  complicating:   ⋅ Planning  long  range   ⋅ Comparing  dollar  amounts  over  time   Hyperinflation:   • Inflation  passing  50%  per  month   o Gov’t  prints  too  much  money:  chasing  same  goods,  prices  increase   • Excessive  growth  in  suppliers  money   o Always  cause  hyperinflation   • Hyperinflation  meets  Zimbabwe   o Large  quantities  of  money  created  due  to  large  gov’t  budget  deflects   o Increased  inflation  rate:  231  million%   Other  Inflation  Measurements:   Bureau  Labor  Stats:   • Producer  Price  Index  (PPI)     • International  Price  Index   The  ‘best’  measure  of  inflation  for  a   • Employment  Cost  Index   given  application  depends  on  the   • GDP  deflator   intended  use  of  the  data   • Core  Inflation  Index               Deflation:   • Downward  pressure  on  price,  not  all  bad   • However   o Low  output  (economic  growth)  =  Low  employment     § Affects  buyers,  slows  purchasing   o Increases  value  of  debt  =  Increase  burden   § Private  and  private  debt   § Lending  slows   o Create  negative  interest  rates       *  The  FED  has  inflation  target  of  2%  per  year:     Maintains  price  stability,  keeps  people  working         Gross  Domestic  Product  (GDP):  Income  expenditure     The  market  value  of  all  finial  goods  and  services  produced  within  a  country  in  a   given  period  of  time     • Market  Value:  goods  are  valued  at  their  market  prices     o Same  units,  like  U.S  dollars   o Excluded  if  no  market  value   • Finial  Goods:  for  the  end  user   o Intermediate  goods  used  to  produce  other  goods   § Avoid  double  counting   • Goods  and  Services:  GPD  provide  tangible  goods  and  intangible  services     • Produced:  Not  including  goods  produced  in  the  past,  only  what’s  currently   produced   o  “Produced,”  not  consumed   • Within  a  Countries  Boarders   o By  citizens  or  foreigners   • In  a  given  period  of  time   o Usually  a  year  or  a  quarter  (3  months)      


Buy Material

Are you sure you want to buy this material for

0 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.