Eg Convert inflate George Bests wages in 1968 to dollars in 2011 Amount in

# Eg convert inflate george bests wages in 1968 to

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Eg: Convert (inflate) George Best’s wages in 1968 to dollars in 2011 Amount in today’s dollars Amount in year T dollars Price level today Price level in year T = x ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
30 Correcting Variables for Inflation: Comparing Dollar Figures from Different Times Self-test Suppose your father’s starting salary in year 1980 was RM1,000. Your starting salary in 2014 is RM2,000. CPI 1980 = 41.27, CPI 2014 = 103.2 Q: Who has greater purchasing power? (Hints: To compare, use the Malaysian CPI to convert 1980 figure into “today’s dollars” in 2014) ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
31 Eg: RM1,000 in 1980 (Father’s salary). RM2,000 in 2014 (my salary) Salary= ___________ in year T CPI = ________ in year T , CPI = _________ (2014). The ratio of price levels = ____________ Means the cost of living ____ by a factor of _____ Amount in today’s dollars Amount in year T dollars Price level today Price level in year T = x RM2,500 = The father’s salary 1980 was RM2,500 in today’s (2011) dollars. ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
32 Self-test: Comparing Dollar Figures from Different Times Q. Ask your parents (or grandparents) how much they paid for their first car and in what year they bought it. Determine how much they would have to pay in current dollars using the consumer price index. ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
33 Correcting Variables for Inflation: Real and Nominal Interest Rates Suppose, you borrowed \$1,000 for one year. Nominal interest rate was 15%. During the year inflation was 10%. Real interest rate = Nominal interest rate Inflation = 15% 10% = 5% Figure: Real and Nominal Interest Rates The nominal interest rate is the interest rate usually reported and not corrected for inflation The real interest rate is the interest rate that is corrected for the effects of inflation ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
34 Self-test: Real and Nominal Interest Rates Q. Suppose you have \$100 in your savings account earning 3 percent interest. What will happen to the purchasing power of that money if prices rise 3 percent, 5 percent and 1 percent during the year. ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
35 PRODUCTION AND GROWTH 25 ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
36 Incomes and Growth Around the World ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
37 Incomes and Growth Around the World ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
38 FACT 1: There are vast differences in standard of living in the world. FACT 2: There is also great variation in growth rates across countries. Incomes and Growth Around the World FACT 3: Since growth rates vary, the country rankings can change over time: W Poor countries are not necessarily doomed to poverty forever e.g. , Singapore, incomes were low in 1960 and are relatively high now. W Rich countries can’t take their status for granted: They may be overtaken by poorer but faster-growing countries. ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
39 Questions: Why are some countries richer than others?

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