: convert a nominal price from period 1 to 2 prices Nominal price1 • (CPI2/CPI1) o Deflating Method : the division method to base year prices; convert nominal prices from various years to a common period (Nominal price1/CPI1) • 100
(Nominal price 2/CPI2) • 100 o **All give the same result** Be able to explain what economists mean by money -- both the definition and how money is measured in the U.S. (Ch. 14.1 & 14.2 and notes) o Money is an asset that does each of: 1. Medium of exchange 2. A store of value 3. A unite of account 4. Standard of deferred payment o M1 : cash and checkable deposits (medium of exchange) o M2 : M1 + savings accounts (close substitute to medium of exchange) The “Fed” can change M1 and M2 as part of the monetary policy Know the current values for real GDP, nominal GDP, the CPI, the GDP deflator and the CPI (and inflation, deflation, and disinflation as measured by the last two). Also, be able to describe their behavior since 1970 from our charts. This means knowing their trends as well as behavior over expansions and recessions. (notes, Section 1 handout, and material below) o Real GDP : $16.4 trillion (2015 III) o Nominal GDP : $18.0 trillion (2015 III) o Inflation (GDP Deflator) : 0.9%; 110 o Inflation (CPI): 0.7%; 237.85 o Economic Growth over the last year (by the % change in real GDP from 2014 III to 2015 III): 2.2% & over the most recent quarter (from 2015 I to 2015 II): 2.0 % (at an annual rate) o Unemployment Rate: 5.0%
Be able to describe the harm from inflation. o We work around inflation o Anticipated inflation : workers and employers agree to increase nominal compensation all else equal Menu costs (minor) Value of money declines o Unanticipated inflation : Can reduce real wages Can reduce real interest rates **Farm more costly than anticipated inflation** Be able to use the "key terms" in these chapters (see the end of the chapter for the list) and definitions used in class. (Ch. 8) o Deflation : is a fall in prices o Disinflation : is less inflation ° ° Readings from Hubbard and O'Brien, (4th and 5th editions) Chapter 8, "GDP: Measuring Total Production and Income" Chapter 14.1 to 14.2, "What is Money..." to "How is Money Measured in the U.S. Today." ° ° Other Readings -- Current Events " After 7 Years of Slow Growth, U.S. Now Sees More of Same" || Questions: PDF or docx "The U.S Budget Deficit to Widen for First Time Since 2009" || Questions: PDF or docx ° ° Practice Quizzes GDP I GDP II Inflation and Real Prices I Inflation and Real Prices II
Section 2 05/03/2016 ° Learning Goals
Be able to explain why economic growth isn't "zero sum." (notes) o Zero sum – one person’s (or group) gain comes as a loss for another Economic Growth is not zero-sum, based on the BBC video we watched in class, the economy in many country’s grew from 1750’s until now. One person’s gain doesn’t come as a loss for another.
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