slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
1 st Skinny Front of Room PowerPoint Presentation
Download Presentation
1 st Skinny Front of Room

Loading in 2 Seconds...

play fullscreen
1 / 83

1 st Skinny Front of Room - PowerPoint PPT Presentation


  • 130 Views
  • Uploaded on

1 st Skinny Front of Room. Middle Aisle. Empty Empty Empty. Empty. Empty Empty. Coach L’s Desk. 2 nd Skinny Front of Room. Middle Aisle. Empty Empty. Empty Empty Empty.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about '1 st Skinny Front of Room' - dougal


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

1st Skinny

Front of Room

Middle Aisle

Empty EmptyEmpty

Empty

Empty Empty

Coach L’s Desk

slide2

2nd Skinny

Front of Room

Middle Aisle

Empty Empty

Empty EmptyEmpty

Coach L’s Desk

slide3

3rd

Front of Room

Middle Aisle

Coach L’s Desk

videos
Videos
  • Back to the Future
  • Michael Myers
slide5

I explain to my students using the SRPC = mirror SRAS metaphor. And I teach inflationary expectations with a basic anecdote about salaries. I ask students to envision the kind of life they could live with a $50,000 salary. What kind of house could they buy? What kind of car would they drive? Where would they shop? And (quite importantly, but oddly) what kinds of gifts could they afford to buy at Christmas? [apologies for political incorrectness, but I teach at a Catholic school - so safe bet to not offend] Now, imagine that inflation went wild over the course of that year you were making $50,000. In reality, you hardly notice it as it's happening. But inflation was an astonishing 10% instead of 2%. It's hard to move or switch cars, those prices are relatively fixed. But food prices and others might hurt over the course of the year. And what would happen to how much money you have left for Christmas presents come December? 

  • So, what's the point? Well, when you realize it's getting expensive to live - and you can't even afford the Christmas you thought you'd have. What do you do? You ask for a raise from your boss when your contract is winding down, explaining that it's just not possible in these conditions to live the way you need to live. And if inflation has been pretty constant across industries, you perhaps get that raise. But SRAS is going to shift inward as input costs rise (you making more money) and SRPC is shifting up, as everyone is starting to accept that this 10% inflation is just a new normal. 
chapter 24 measuring the cost of living
Chapter 24 – Measuring the Cost of Living
  • Cost of Living – cost of maintaining a certain standard of living
    • The amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes, and healthcare.
cost of living calculator
Cost of living calculator
  • http://cgi.money.cnn.com/tools/costofliving/costofliving.html
slide11

Groo the Wanderer Issue #1 March 1985 – $.75

The Amazing Spiderman #700December 2012 – $7.99

chapter 24 measuring the cost of living1
Chapter 24 – Measuring the Cost of Living
  • Inflation – a general and sustained increase in prices, causes money to hold less value
    • Inflation rate – percentage change in the price level from the previous period or base year.
      • Normal, “healthy” rate is about 2-3%
      • From 1914 until 2010, the average inflation rate in United States was 3.38 percent
dollar value calculator
Dollar Value Calculator
  • http://www.usinflationcalculator.com/
chapter 24 measuring the cost of living2
Chapter 24 – Measuring the Cost of Living
  • Hyperinflation – rapid increase in prices, inflation that is out of control
  • Disinflation - is a decrease in the rate of inflation
    • A slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time.
  • Deflation – sustained drop in the price levels
  • Stagflation – a combined rise in prices with a slowdown in the economy
causes of inflation
Causes of Inflation
  • Quantity Theory – too much money in the economy causes inflation
    • Ideally, the money supply should increase at the same rate of growth in GDP
causes of inflation1
Causes of Inflation
  • Demand-Pull Theory – inflation occurs when demand for goods and services exceeds existing supplies
causes of inflation2
Causes of Inflation
  • Cost – Push Theory – inflation occurs when producers raise prices in order to meet increasing costs of inputs
videos ducktales zimbabwe deflation bad for economy
Videos DucktalesZimbabweDeflation (bad for economy)

http://www.youtube.com/watch?v=t_LWQQrpSc4&list=PL16DF87D4D82CCBC4&index=7&feature=plpp_video

http://www.youtube.com/watch?v=vQCCDttLhA4&playnext=1&list=PL5C945AB38F1A4497&feature=results_video

http://www.cnn.com/video/?/video/business/2009/07/29/boulden.deflation.jargon.buster.cnn

Why not print?

http://www.youtube.com/watch?v=ZkyBnaYCUhw&list=FLYtay8jXCpSl6ImxtKXk4iQ&index=1

consumer price index
Consumer Price Index
  • Consumer Price Index – an index used to measure inflation; measures the overall cost of goods and services bought by the typical urban consumer
      • Computed each month by the Bureau of Labor Statistics (BLS), part of the Department of Labor

URBAN

RURAL

what s in your market basket
What’s In Your Market Basket?
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
  • ________________________________
consumer price index1
Consumer Price Index
  • Market Basket – metaphorical object to represent the collection of goods and services purchased by the typical urban consumer on a monthly basis
    • Fix the basket of goods and services to compare prices
    • Derived of more than 200 sub-categories, arranged into eight major groups
consumer price index2
Consumer Price Index
  • Market Basket for Products 2012 – $4114.32

FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)

HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

APPAREL (men's shirts and sweaters, women's dresses, jewelry)

TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)

MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)

RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);

EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);

OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

market basket over the years
Market Basket Over The Years

2013

1950’s

$1.19

.15

market basket over the years1
Market Basket Over The Years

2013

1950’s

$65,000

$3000

market basket over the years2
Market Basket Over The Years

2013

1950’s

$13.00

.50

the typical basket of goods and services
The typical basket of goods and services

This figure shows how the typical urban consumer divides spending among various categories of goods and services. The Bureau of Labor Statistics calls each percentage the “relative importance” of the category.

what is inflation cpi video
What is Inflation? CPI Video

http://www.youtube.com/watch?v=Vi3Q1ypNw3M&list=PL4D085215905ABBE5&index=15&feature=plpp_video

http://www.youtube.com/watch?v=Si37yjZM-SA&list=PL4D085215905ABBE5&index=21&feature=plpp_video

slide31

Determining Consumer Price Index

  • CPI = Price of basket of goods and services in current year X 100 Price of basket in base year period
  • Base Period is between 1982 – 1984
  • 1982/1984 – $1792.00
  • Market Basket for Products
  • 2012 – $4114.32
  • $4114.32 /1792 = 2.2959
  • 2.2959X100 =229.59
  • 2012 CPI = 229.59
  • Prices have inflated by 129.59% since 1982-1984 (base period to 2012)
slide32

Determining inflation Rate

  • Inflation rate = CPI Current Year – CPI Previous Year X 100 CPI Previous Year
  • 2012 CPI – 229.59
  • 2007 CPI – 207.34
  • 229.59– 207.34 = 22.25
  • 22.25/207.34= .1073
  • .1073X 100 = 10.73%
  • Prices have inflated by 10.73% from 2007 to 2012
determining cpi
Determining CPI

3858.18/1792 = 2.153 x 100 = 215.30

problems with the consumer price index overstated prices
Problems with the Consumer Price Index (overstated prices)
  • Substitution bias - a bias in economics index numbers arising from tendency to purchase inexpensive substitutes for expensive items when prices change.
    • Overstates inflation.
    • Consumers will consume more of the now comparatively inexpensive good and less of the now relatively more expensive good.
    • For example, a selected good is bought by consumers and it is therefore included in the CPI basket, but when an increase in price of that selected good occurs customers may buy a cheaper substitute, while the CPI basket does not change.
problems with the consumer price index
Problems with the Consumer Price Index
  • Introduction of new goods - CPI uses only a fixed basket of goods, the introduction of a new product cannot be reflected (done every 10 years)
    • iPods vs. Walkman, digital media vs. CDs
  • Unmeasured quality change - improvements and depreciating goods are not immediately recognized by the BLS
    • Fuel efficient cars
purchasing power and inflation
Purchasing Power and Inflation
  • If you receive a 10% increase in pay from last year, but prices have increased by 15%, what is the result?
  • You are 5% worse off.
  • Nominal wage increase of 10%
  • Real wage decrease of 5%
  • Your salary has to keep up with inflation or you are losing purchasing power
purchasing power and inflation1
Purchasing Power and Inflation
  • Purchasing power – the number of goods/services that can be purchased with a unit of currency.
  • Fixed Income – income that does not increase when prices go up
  • Indexed – when a dollar amount is automatically corrected for inflation
  • Cost of living allowance/adjustment (COLA) - benefit increases based on increases in the cost of living, as measured by the Consumer Price Index.
    • Pension plans, Social Security, Salaries (see website)
anticipated vs unanticipated inflation
Anticipated vs. Unanticipated Inflation
  • Anticipated Inflation – Expected inflation
    • Allows people/businesses to make accurate predictions of inflation and take steps to protect themselves from its effects.
  • Unanticipated Inflation – Unexpected inflation
    • When inflation is volatile from year to year it becomes difficult for individuals and businesses to correctly predict the rate of inflation in the near future.
    • Unanticipated inflation occurs when economic agents (i.e. people, businesses and governments) make errors in their inflation forecasts.
slide46

Correcting economic variables for effects of inflation

  • Interest rates are the gains you make from lending, or the cost you incur from borrowing.
  • Nominal Interest Rate – the interest as usually reported without a correction for the effects of inflation
  • Real Interest Rate – the interest rate corrected for the effects of inflation
  • Real Interest Rate = Nominal Interest Rate – Inflation
interest rates and inflation
Interest Rates and Inflation
  • If you put $1000 into a savings account at 3% simple interest, you will have $30 at the end of the first year.
  • If inflation is 2%, how much have you gained in interest?
  • You have experienced “real” gains of 1%.
  • Nominally you gained $30, but you really only earned $10
  • Your money in the bank has to keep up with inflation or you are losing purchasing power.
slide48

Who loses from unanticipated inflation?

  • Savers
  • Example 1:
    • An individual puts $100 in a fixed interest savings account.
    • The individual could buys the basket of goods and services today and it would cost $100.
    • if we anticipate inflation to be 3%, the same basket of goods and services would cost $103 in a year.
    • At 3% interest for 1 year, they have earned they will have earned $3, bringing the value to $103 and thus keeping up with inflation.
    • If prices is unexpectedly and the inflation rate is 4%, then the unanticipated inflation rate is 1%, and the saver loses purchasing power.
slide49

Who loses from unanticipated inflation?

  • People living on Fixed Incomes
  • Example:
    • A teacher survives on a fixed income from a prearranged contract.
    • If we anticipate inflation to be 3%, then the teacher needs to earn at least 3% each year to compensate for increase in cost-of-living.
    • If prices rise unexpectedly and the inflation rate is 6%, then the unanticipated inflation rate is 3%, and the teacher loses purchasing power, bringing down real wages.
slide51

Who loses from unanticipated inflation?

  • Lenders
  • Example:
    • Suppose Bank of America lends an individual $10,000 to be paid back in 2 years at 4% simple interest, or 800 dollars.
    • The bank will structure the loan to account for anticipated inflation.
    • If inflation rises beyond what is structured in the loan, say 6% each year, then the lender is being paid back with money that is less valuable relative to the rate of inflation.
slide52

Who Gains/Unaffected by unanticipated inflation?

  • People living on a flexible income (COLA)
  • Example:
    • Someone living on Social Security (COLA is pegged to inflation)
    • Someone that has a COLA built into their contract for wages.
    • Someone that is retired and is living on a pension that accounts for inflation.
  • Borrowers (fixed interest rate):
  • Example:
    • Someone borrows $275,000 to build a house and negotiates a 4.25% interest rate.
    • Inflation rises and causes banks to build higher rates into current contracts .
    • Now contracts are set at 6.25%
hurt helped or unaffected by unanticipated inflation
Hurt, Helped or Unaffected by Unanticipated Inflation

Savers on fixed interest rate accounts

Borrowers on fixed interest rate accounts

People living on fixed incomes

People with a COLA built into their income

Lenders offering fixed interest rate loans

Firms that made prearranged fixed-income/costs contracts

slide54

Their money in the bank kept up with inflation

Unaffected

The banks set their loans based on anticipated inflation of 2%, at 4%, they didn’t earn as much as they had anticipated

Hurt

Producers gain, because they do not have to adjust workers salaries, while making more money, workers are hurt because prices rose, but their pay didn’t

Gain

Hurt

Your money in the bank did not keep up with inflation

Working poor are hurt because prices rose, but their pay didn’t

Hurt

slide55

Their money in the bank keeps up with inflation

Unaffected

Teachers on a fixed income are hurt because their pay does not keep up with inflation

Hurt

Gain

Their pay increases and becomes more valuable relative to the things they buy, as inflation rises

Unaffected/Gain

They are paying back a loan with less valuable dollars

They are being paid back with less valuable dollars

Hurt

slide56

Amount in today’s dollars = Amt. in year T dollars X Price level today Price level in year T

  • Salary in 2007 dollars = Salary in 1931 dollars X Price level in 2007 Price level in year 1931
  • Salary in 2007 dollars = $80,000 X 207
  • 15.2
  • Salary in 2007 dollars = $1,089,474

Dollar figures from different times

slide57

Dollar figures from different times

Your father graduated from school and took his first job in 1972, which paid a salary of $7,000. What is this salary worth in 2007 dollars?

CPI in 1972 = 41.8

CPI in 2007 = 207

  • Salary in 2007 dollars = $7000 X 207
  • 41.8
  • Salary in 2007 dollars = $34,655
slide58

Dollar figures from different times

  • Amount in today’s dollars = Amt. in year T dollars X Price level today Price level in year T
  • 1914 - $5
  • 2007 – 207
  • CPI in 1914 - 10
  • Salary in 2007 dollars = Salary in 1914 dollars X Price level in 2007 Price level in year T
  • Salary in 2007 dollars = $5 X 207
  • 10
  • Salary in 2007 dollars = $103.50
vis terms
VIS Terms
  • Structural
  • Cyclical
  • Frictional
  • Seasonal
  • Unemployment Rate
  • Underemployment
  • Discouraged Worker
  • Inflation
  • Inflation rate
  • Hyperinflation
  • Deflation
slide79

1.

2.

3.

4.

due today
Due Today

Chapter 24

  • Market Basket to Consumer Price Index (Determining CPI/Inflation Rate)
  • Chapter 24 Mankiw Practice Review
  • The Effects of Inflation
  • Daily Tens
  • Notes
  • Terms (ch. 24)