Lecture_2_complete_version

Lecture_2_complete_version - Lecture 2 Measuring Macro...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Lecture 2 Measuring Macro Performance: The Price Level Savings & Wealth
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Consumer Price Index (CPI) Define a base year . Determine basket of goods and services consumed. CPI=1.25 … prices 25% higher in current year compared to base year. Cost of base year basket in current year Cost of base year basket in base year CPI =
Background image of page 2
3 Inflation % change in the CPI over some period From previous quarter From corresponding quarter in previous year An aggregate of price changes Alternative measures of inflation: “Underlying” inflation The “trimmed mean” Deflation
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Inflation is costly Shoe-leather costs Noise in the price system Tax system distortions – “bracket creep” Unexpected redistribution of wealth Distorts firm and household decisions Menu costs Reduces real value of debts ‘reboot’ the economy after a debt binge!
Background image of page 4
5 But de flation is bad too Real value of debts rises Debt burden increases. Consumers put off purchases Firms’ profit margins decline Bankruptcy & unemployment Inflation like the “oil” that greases the “economic wheel”. Need some of it, but not too much!
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Annual Inflation Rates -0.05 0 0.05 0.1 0.15 0.2 0.25 2010 2006 2002 1998 1994 1990 1986 1982 1978 1974 1970 1966 1962 1958 1954 1950 Year Japan Australia Source: www.rateinflation.com
Background image of page 6
7 Australia CPI Contribution (2010: 2.9) Expenditure Group Weight (%) Contribution (%) Food 15.44 0.7 Alcohol & Tobacco 6.79 3.5 Clothing & Footwear 3.91 -1.8 Housing 19.53 6.1 House contents/serv.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 32

Lecture_2_complete_version - Lecture 2 Measuring Macro...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online