notes_macro_ch1 - MACROECONOMICS Macro Notes G.Karras 2011...

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Macro Notes © G.Karras 2011 MACROECONOMICS Georgios Karras* University of Illinois at Chicago * Professor of Economics; Mailing Address: Department of Economics, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL 60607-7121; e-mail: [email protected] . Lecture Draft Do not cite without permission
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Macro Notes © G.Karras 2011, p.2 ││ 1 ││ MACROECONOMIC ISSUES 1.1. Inflation The Price Level ( P ): the average level of prices of goods and services Inflation Rate ( π ): the growth rate of the Price Level 1 1 t t t t P P P
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Macro Notes © G.Karras 2011, p.3 Example #1 (year ago) : 04 . 113 2 2011 Q P 77 . 110 2 2010 Q P % 2 02 . 0 77 . 110 77 . 110 04 . 113 2 2010 2 2010 2 2011 2 2011 Q Q Q Q P P P Example #2 (quarter ago, annual rate) : 04 . 113 2 2011 Q P 39 . 112 1 2011 Q P % 3 . 2 023 . 0 4 39 . 112 39 . 112 04 . 113 1 2011 Q
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Macro Notes © G.Karras 2011, p.4 Increasing Prices Inflation: 0 1  t t t t P P P Decreasing Prices Deflation : 0 1  t t t t P P P Steady Prices Price Stability: 0 1 t t t P P Note: Deflation (Falling Prices) Disinflation (Falling Inflation) t t P
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Macro Notes © G.Karras 2011, p.5
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Macro Notes © G.Karras 2011, p.6 1.2. GDP: G ross D omestic P roduct ( Y ) Real GDP : the volume of goods and services produced by the economy within a year [Quantities] Nominal GDP : the monetary value of goods and services produced by the economy within a year [Quantities x Prices] P GDP GDP Real Nominal P GDP GDP Nominal Real
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Macro Notes © G.Karras 2011, p.7
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