Inflation Understanding Measuring Inflation INFLATION Economic condition of
- Slides: 18
Inflation Understanding & Measuring Inflation
INFLATION • Economic condition of Average Prices Rising • Jeans $20 1999 => Jeans $40 2009 • GDP increases => output remained the SAME • All economic numbers must be adjusted for inflation – Real numbers – adjusted for inflation – Nominal numbers – NOT adjusted for inflation
Consumers notice when their paychecks start to buy less!
Historical Inflation • Germany: “hyperinflation” after World War I – Currency became worthless • USA: Late 1970 s—Oil Crisis-- 13% low inflation since 1985 [2. 0 -3. 5%] • USA speed limit: target for inflation is well under 3. 0%
Stagflation Deflation Some factors: Technology & Globalization
WHY? Your life has not yet seen significant inflation (in USA) We have enjoyed low inflation for almost 30 years! Some factors: Technology & Globalization
Notice how inflation Increased in the 1970’s
Calculating % Change • You buy a stock at $8 per share • It is now at $10 per share • What % gain did you make? Formula is: [(Ending Price – Beginning Price) / Beginning Price] * 100 (10 -8)/8 * 100 = +25%
What is in the CPI’s Basket? 17% Transportation 15% Food and beverages Education and communication 6% 42% Housing 6% 6% 4% 4% Medical care Recreation Apparel Other goods and services
Use 2005 as the base year Measuring Inflation CPI =100 • Consumer Price Index (CPI) measures inflation – Pick a base year which = 100 Example: • Uses a market “basket” of goods & services – Government prices it monthly – Compares cost of the new basket to old basket • CPI = Current Price of Basket in Base Year X 100 2005 2007 $10 $12 ($12/$10) X 100 = 120 = CPI Index 120 is the CPI Index for 2007
Worksheet • Creating an Index
Day 2
Problems with CPI • • Substitution Bias New goods Unmeasured quality changes Housing Measurement Basket must “evolve” with the market
The Most Popular Movies of All Times, (Inflation Adjusted)
Adjusting numbers for inflation • Convert Babe Ruth’s wages in 1931 to 2005 dollars: CPI Index (2005) Base Year Index (1931) 1931 Salary = $ 80, 000 195 15. 2 X Old Dollar Value = 2005 dollars CPI = 15. 2 1931 CPI = 195 2005 X $80, 000 = 1, 026, 316 (2005 dollars)
Calculating a CPI Index (video) • http: //www. youtube. com/watch? v=Xxk. Dh. Gl. Mqko
Practice Test
Key Concepts for lecture • • Inflation Defined Historical Inflation Rates Consumer Price Index (CPI) Adjusting numbers for inflation
- Geometrical symbols
- Understanding inflation
- Agriculture in sangam period was developed in madurai
- Social and economic condition of pallavas
- Demand-pull inflation occurs when
- Measuring and managing economic exposure
- Measuring economic sustainability and progress
- Measuring broad economic goals
- Measuring economic exposure
- Economic exposure example
- Economics chapter 13 vocabulary
- Economic growth vs economic development
- Growth and development conclusion
- Economic systems lesson 2 our economic choices
- Konditionalsatz
- Warmcomparative and superlative
- Potestative condition example
- Abcd audience behavior condition degree
- Second condition of equilibrium