assign8 - Intro Macro N. Sheflin ASSIGNMENT 8 READING DUE...

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I n t r o M a c r o N . S h e f l i n ASSIGNMENT 8 READING DUE BEFORE CLASS TUESDAY 10/18 / MULTIPLE CHOICE HOMEWORK DUE BEFORE CLASS FRIDAY 10/21 NOTES: Price Indices, Inflation and the Short-Run Phillips Curve A quick look at Price Indices, Deflating nominal variables to get real variables and, more importantly, SR Inflation and the Short-Run Phillips Curve. . This complete our first look at the SR Keynesian model of the economy. We will turn in future weeks to the LR Classical model and other issues, including economic growth, international economics, and more ONLINE MIDTERM –Wednesday 10/26 4pm through Friday 10/28 8pm – Must be taken in 1 hour window during this period. COVERS weeks 1-8 in 50 multiple choice questions covering material from these weeks. You might wish to study as follows: - review the OUTLINE OF KEY POINTS TO DATE below -look up any of the topics you don’t understand -look at the textbooks’ end of chapter summaries -look at the big questions and notes in each assignment -review the ‘answered’ hw I posted -review the general hw questions you got wrong You must ASK YOURSELF QUESTIONS and TEST YOURSELF looking up material that you get wrong. WHERE WE ARE –OUTLINE OF KEY POINTS TO DATE AND WHY WE DID THINGS IN THE ORDER WE FOLLOWED -- see bottom of assignment READING Rittenberg chapter 5, section 2 “PRICE LEVEL CHANGES”only and chapter 16, first section “RELATING INFLATION AND UNEMPLOYMENT” and first part of second section “The PHILLIPS PHASE” only Also, look at the CPI at: http://www.bls.gov/news.release/cpi.nr0.htm and Why the core cpi: http://krugman.blogs.nytimes.com/2010/02/26/core-logic/ Bernanke on Deflation, in 2002 (prophetic?) http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm And skim a recent article on the SR Phillips curve: http://www.frbsf.org/publications/economics/letter/2010/el2010-02.html And glance at DeLong’s Inflation page: http://www.j-bradford-delong.net/multimedia/Inflation.html and Phillips curve http://www.j-bradford-delong.net/multimedia/USPCurve.html . – a bit old KEY POINTS OF THIS WEEK The CPI is a fixed base year quantity price index and considered by some a cost-of-living index (although problems with this). The CPI can be used to track changes in prices of goods and services purchased for consumption by households, i.e., of the consumer basket . Typically an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one. CALCULATING THE CPI Basically we take the prices and quantities of all goods and services to be included in the ‘market basket’ bought by consumers (determined by a survey) and then, calculate total expenditure on the basket by multiplying the prices and quantities of each item. In each subsequent year, we recalculate total expenditures using that years prices but the BASE YEAR QUANTITIES so that
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2 changes in total expenditure reflects price changes only. We divide each
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assign8 - Intro Macro N. Sheflin ASSIGNMENT 8 READING DUE...

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