Exam2StudyGuide204_SP13 - EXAM 2 STUDY GUIDE CHAPTERS 7 10(partial Chapter 7 ECON 204 SPRING 2013 Says Law Keynesian Theory Inherently unstable economy

Exam2StudyGuide204_SP13 - EXAM 2 STUDY GUIDE CHAPTERS 7...

This preview shows page 1 - 2 out of 3 pages.

EXAM 2 STUDY GUIDE – CHAPTERS 7 - 10 (partial) ECON 204 SPRING 2013 1 Chapter 7 Inflation Deflation Effects of Inflation 1. Price effects a. Real vs. nominal income 2. Income effects 3. Wealth effects Money illusion Measuring inflation Consumer Price Index (CPI) Market basket Construction of a Price Index 1. Calculate cost of basket in each year 2. Create Price Index using chosen base year g1842g1835 g3047 = g1855g1867g1871g1872g1867g1858g1865g1853g1870g1863g1857g1872g1854g1853g1871g1863g1857g1872g1861g1866g1877g1857g1853g1870g1872 g1855g1867g1871g1872g1867g1858g1865g1853g1870g1863g1857g1872g1854g1853g1871g1863g1857g1872g1861g1866g1854g1853g1871g1857g1877g1857g1853g1870 ∗100 3. Calculate inflation rates g1835g1866g1858g1864g1853g1872g1861g1867g1866g1870g1853g1872g1857= g1842g1835 g3047 −g1842g1835 g3047g2879g2869 g1842g1835 g3047g2879g2869 ∗100 The core rate Excludes volatile food & energy prices. Price stability Full employment and Balanced Growth Act of 1978 – target inflation of around 3% Quality changes CPI can overstate inflation if quality changes are not accounted for Chapter 8 Classical Theory Self-adjustment Flexible prices & wages Say’s Law Keynesian Theory Inherently unstable economy Government intervention Modeling the macroeconomy Aggregate demand(AD) Why downward-sloping?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture