bell work: freyonomy pay yourself and pay your mon/tues bills
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Bell work: Freyonomy Pay yourself and pay your Mon/Tues bills. Inflation. Standard 5 Notes Part I. Inflation- a sustained rise in the level of prices generally or a sustained decrease in purchasing power. Inflation. - PowerPoint PPT PresentationTRANSCRIPT
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Bell work: FreyonomyPay yourself and pay your Mon/Tues bills
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InflationStandard 5 Notes Part I
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Inflation
Inflation- a sustained rise in the level of prices generally or a sustained decrease in purchasing power.
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What causes inflation?
Demand-pull inflation- results when total demand rises faster than the production of goods and services
"more money chasing the same amount of goods.“
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What causes inflation? Cost-push inflation- results when
increases in the costs of production push up prices.◦ Inputs like labor, land, capital, and
management◦ Wage-price spiral- a cycle that
begins with increased wages, which lead to higher production costs, which in turn result in higher prices, which result in demands for higher wages.
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Cost-push Inflation
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What is the impact of inflation?
Decreasing Value of the Dollar◦ people on fixed incomes are hit hard. They do not receive wage increases. ◦ EX: People on social security
Increasing Interest Rates◦ borrowing money becomes more expensive to keep up with the rate of
inflation. Credit card payments rise. Consumers buy less items that require borrowing like houses and cars.
◦ Ex. Fred wants to buy a car valued at $10,000 Fred saved up for a plan where the interest rate is 5% ($188 a month) Inflation caused interest rates to increase to 10% (now $212 a month) Over his 5 yr loan period, Fred will end up paying over $1,425 more for his loan
at the higher rate
Decreasing Real Returns on Savings◦ if the inflation rate is higher than your interest rate in your savings account
or bond, you can lose money that you are trying to save.
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InflationHow is it measured?
◦ Consumer Price Index (CPI)- a measure of changes in the prices of goods and services commonly purchased by consumers.
◦ Producer Price Index (PPI)- a measure of change in wholesale prices
◦ Inflation Rate- the rate of change in prices over a set period of time.
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Types of InflationCreeping inflation- small rate of inflation
over a long period of timeGalloping Inflation- a rapid increase in price
levelHyperinflation- a rapid, uncontrolled rate of
inflation in excess of 50% per monthDeflation-a decrease in the in the general
price level
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Deflation
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GDP
Standard 5
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Reading Check
• GDP= (Gross Domestic Product)– Market value of all final G/S produced within
a nation in a given time period
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Reading Check
• Final Good– t-shirt
• Intermediate good– fabric used to make a t-shirt
• Which (final or intermediate) is not included in the GDP?– Intermediate
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Reading Check• Nonmarket activities are not included in the GDP because
they are services that people don’t charge for. – performing one’s own home repairs– Homemaker’s cooking, cleaning, and childcare
• Underground economy- because the activities are illegal, and thus unreported to the government– illegal- drug dealing– plumber who works for cash (not reported on his taxes)
• Quality of Life (GDP does not show how G/S are distributed- US highest GDP, but 10%+ of Americans live in poverty)
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Challenge Question
• If you get paid in cash to baby-sit, mow lawns, or do other chores for neighbors, are you part of the underground economy or non market activities?
• Underground economy- if you don’t claim the money you made on your taxes
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Calculating GDP: C+I+G+X=GDP (C) Consumption = household spending on consumer goods and services
+ (I) Investment = spending by firms and households on new capital such as factories, tools, inventory increases or decreases, and new houses
+ (G) Government Spending = government spending on public goods and services
+ (X) Net Exports = foreign trade (exports are added to GDP and imports are subtracted)
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GDP Growth/Reduction
• When GDP is growing– an economy creates more jobs and more business
opportunities
• When GDP declines– jobs and more business opportunities become
less plentiful
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2 Types:
• Nominal GDP- stated in the price levels for the year in which the GDP was measured
• Real GDP- nominal GDP adjusted inflation (for changes in prices)– (Nominal GDP Growth Rate % - Inflation Rate % = Real GDP Growth Rate %)
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Bell work Freyonomy
1. Pay your Wednesday/ Thursday bills
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Marriage?
Benefit= can split the mortgage bill with someone else
Cost= have to pay for the wedding
• Small Wedding– $1,500– Or $125 a month
• Medium Sized Wedding– $10,000– Or $835 a month
• Large Wedding– $20,000– Or $1,670 a month
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Business Cycle
• A series of periods of expanding and contracting economic activity• Four Phases:
– Expansion• A period of economic growth (an increase in a nation’s real GDP)
– Peak• The point at which GDP is highest
– Contraction• Sometimes a recession (6 months+) or depression (extended period of high
unemployment and limited business activity)– Trough
• The point at which real GDP and employment stop declining
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How economic growth is measured• Real GDP per capita– Real GDP/Total Population– Reflects each person’s share of real GDP– Some people will have more money, others less– Does not measure quality of life
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One way to understand business cycles is through demand and supply…
• Aggregate demand- the total amount of G/S that households, businesses, government and foreign purchases will buy at each and every price level
• Aggregate supply- the total amount of G/S that producers will provide at each and every price level
http://www.classzone.com/cz/books/econ_cnc/resources/htmls/animated_economics/ec12_anim_macroequilib.html
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Aggregate Demand• Increase in aggregate
demand• Expansion phase
• Decrease in aggregate demand
• Contraction phase
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Why do Business Cycles Occur?• Business decisions
• Aggregate supply increase can cause an economic expansion
• Changes in interest rates• Rise in interest rates= decrease in AD (aggregate demand)• Fall in interest rates= increase in AD
• Consumer expectations• Ways consumers feel about prices, job prospects, businesses activity
cause changes in aggregate demand
• External issues (i.e. Hurricane Katrina, oil embargo of 1973)
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Business Cycles in U.S. History
• The Great Depression– Real GDP declined by about a third– Sales in some big businesses
declined by as much as 50 percent– 1 in 4 people were unemployed
• The New Deal– Government agencies created– Many Americans were put back to
work– Some trees in Eagle Creek Park
were planted during this time