LectureNotes 4-8

# LectureNotes 4-8 - Correcting economic variable for the...

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Lecture Notes Economics T-Th A. Ordonez Chapter 16 809-195-3K1C 4/8/10 The BLS Calculates other price index: The index for different regions within the country The (PPI) Producer Price Index, which measures the cost of a basket of goods & services bought by firms rather than consumers Economists and policymakers monitor both the GDP inflation and the CPI to gauge how quickly prices are rising There are 2 important differences between the 2 indexes that can cause them to diverge The GDP Deflator vs. The CPI The GDP deflator reflects the prices of all goods & services produced domestically. ... ... The CPI reflects the price of all goods and services bought by consumers The CPI compares the price of a fixed basket f goods and services to the price of the basket in the base year (only occasionally does the BLS change the basket. ..) .... Whereas the GDP deflator compares the price of currently produced goods &

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Unformatted text preview: Correcting economic variable for the effects of inflation • Price indexes are used to correct for the effects of inflation when comparing dollar values from different times. • Do the following to convert dollar values from year T into today's dollars. = [ Amount in todays dollars amount in year T dollars Price level todayPrice ] level year T Real and Nominal Interest Rates • Interest represents a payment in the future for a transfer of money in the past • The Nominal Interest Rate is the interest rate usually reported and not corrected for interest o It is the interest rate that a bank pays. • The Real Interest Rate is the interest rate that is corrected for the effects of inflation =-Real Interest Rate Nominal Interest Rate Inflation Rate Lecture Notes Economics T-Th A. Ordonez Chapter 16 809-195-3K1C 4/8/10 PowerPoint...
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LectureNotes 4-8 - Correcting economic variable for the...

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