Lecture 3 - Lecture 3 The Price Level Real vs. Nominal...

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Unformatted text preview: Lecture 3 The Price Level Real vs. Nominal Quantities The Quantity Theory of Money F10 The Price Level CPI-U C onsumer P rice I ndex for All U rban Consumers Base year 1982-4 = 100 1967 = 100 8/10 218.3 654.0 8/09 215.8 646.5 8/08 219.1 656.3 1982-4 100.0 299.5 1967 (33.4) 100.0 CPI computed monthly by Bureau of Labor Statistics (BLS) in US Dept. of Labor (stats.bls.gov) Is final on release, has 1 month computation lag. 50 100 150 200 250 1950 1960 1970 1980 1990 2000 2010 CPI-U 1982-84 = 100 Linear Scale Year (through 2008) Growth rates hard to visual with linear scale Logarithmic scale better for this purpose. 200 160 120 100 80 60 40 20 1950 1960 1970 1980 1990 2000 2010 CPI-U 1982-84 = 100 Logarithmic Scale Year (through 2008) With logarithmic scale, slope indicates growth rate. CPI grew faster 1968-82 than before or after. Inflation = rate of growth of price level. P t = Price level in year t P t-1 = Price level in year t-1 = annual inflation rate (Delta) indicates change in variable. Deflation = negative inflation = rate of decline of price level. Less common than inflation. 1 1 = = t t t P P P P P 8/09 8/10: 8/08 8/09: Same with any Base Year (within rounding error): 8/09 8/10: 8/08 8/09: inflation annual % 2 . 1 012 . 8 . 215 8 . 215 3 . 218 = = = inflation annual % 2 . 1 012 ....
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Lecture 3 - Lecture 3 The Price Level Real vs. Nominal...

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