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Menu_26_Oct_09 - a Real rate = Nominal interest rate –...

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TODAY’S MENU: Monday 26 October 2009 I. BUSINESS A. Practice Problems 1. Chapter 22: 1-4, 7-16, 19, 20 2. Chapter 23: 1, 2, 6-11, 13, 16, 18, 19 B. Third exam: Two weeks from today (09 November) II. SUBSTANCE A. Unemployment: Four Types 1. Frictional 2. Structural a. Definition b. Long-term; undesirable; policies c. Examples 3. Cyclical a. Definition b. Short or long-term; very undesirable; policies c. Examples 4. Seasonal a. Definition b. Short-term; inevitable; adjustments c. Examples B. Policy Goal: Full Employment 1. Definition C. Inflation and Inflation Rates 1. Definitions 2. Measurement: Fixed basket of goods and services a. Consumer Price Index (CPI) b. Producer Price Index (PPI) c. Total and Core inflation rates D. Uses for the inflation rate 1. Finding the true cost of borrowing: real interest rate
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Unformatted text preview: a. Real rate = Nominal interest rate – expected rate of inflation 2. Deflating a. Convert nominal values into real ones b. Application: Minimum Wage—higher in 1969 or 2009? 3. Indexing a. Adjust nominal values to hold real values constant b. Application: Social Security benefits E. True Costs of Inflation: NOT loss of purchasing power, rather. .. 1. Interference with long-run planning a. Increased fluctuation in inflation rates = increased risk in borrowing and lending b. Fisher Effect: nominal interest rates and inflation rates III. NEXT TIME A. Chapter 23: “National Income Accounting”...
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