E251x.F11.W15.PV.Financial Assets

E251x.F11.W15.PV.Financial Assets - ECON 251x Week 15 Nov....

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ECON 251x Week 15 Nov. 28 – Dec. 1, 2011
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Estimating Changes in the Price level CPI: Consumer Price Index (Laspeyres Index) Based on a previous Market Basket GDP Deflator (Passhe Index) Based on current market basket.
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Consumer Price Index (CPI) PcQb/PbQb Overstates Inflation in the Price level
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GDP Deflator PcQc/PbQc Understates Inflation in the Price level
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Interest Rate: Price of earlier availability Expressed as a % of present value Expressed as an annual %, even for transactions of less than a year or for multiple years. (allows easy comparisons) 6 month CD: .85% 30 year fixed mortgage: 3.99 %
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Nominal Rate (what we observe) Nominal interest i% = Real interest r% + anticipated inflation P* [i% = r% + P*] Real interest: Why Positive? Positive Time Preference (Future is uncertain) Productive Opportunities Nature is productive Capital is productive
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Demand: People wanting to borrow money
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This note was uploaded on 02/11/2012 for the course ECON 251 at USC.

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E251x.F11.W15.PV.Financial Assets - ECON 251x Week 15 Nov....

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