ECO 232 3.15.07

ECO 232 3.15.07 - $1,000. $1,400. 2007 Prices: Total: $8...

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March 15, 2007 Eco 232 One measure of the health of the economy is the price stability. Inflation: the rise in the average prices. Deflation: the decrease in the average prices. Post-WWII, the US has not experienced deflation. Pre-WWI, in the aggrigarian society, the US would go through spurts of inflation-deflation. The government would flood the market with money during the harvest, when there was a large amount of transactions. Today, this happens during the Christmas season. Approximately 3% inflation. Price Level: a weighted (by quantity) average of prices. Price Index: a measure of price levels. Consumer Price Index: a measure of price levels in relationship to consumer commodities. Market Basket: what the average household would consume. Typical Market Basket: Goods: Quantity: 1997 Price: Total: corn 100 bushels $4 $400. computers 2 computers $500
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Unformatted text preview: $1,000. $1,400. 2007 Prices: Total: $8 $800. $425 $850. $1,650. Price Index = Expenditure in Year of Interest / Expenditure in Base Year PI 2007 = 1650/1400 x 100 = 117.86 PI 1997 = 1400/1400 x 100 = 100 Base Year: The year all other years are measured against. Inflation Rate = PI (later) - PI (earlier)/PI (earlier) x 100 = % Change PI 117.86 - 100 / 100 x 100 = 17.86 JFK's $ vs G.W. Bush's $ PI 1984: PI 1961: 1961 29.9 100.0 1984 100.0 334.45 2002 179.8 601.34 JFK = $100,000. GWB = $400,000. JFK made more money. Nominal: measured in current year prices. Real: prices adjusted for changes in price levels. Real Income = nominal income / PI x 100.00 $400,000/179.8 x 100 = $222,464 $100,000/29.9 x 100 = $334,448 Stock: set number. Flow: rates that change. Real Interest Rate = i r- Pi e approximately 2%...
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ECO 232 3.15.07 - $1,000. $1,400. 2007 Prices: Total: $8...

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