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

Eg convert inflate george bests wages in 1968 to

This preview shows page 29 - 40 out of 54 pages.

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
Image of page 29
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
Image of page 30
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
Image of page 31
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
Image of page 32
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
Image of page 33
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
Image of page 34
35 PRODUCTION AND GROWTH 25 ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
Image of page 35
36 Incomes and Growth Around the World ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
Image of page 36
37 Incomes and Growth Around the World ECW1102, Semester 1, 2017 MUM/ Dr. Shahriar Kabir
Image of page 37
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
Image of page 38
39 Questions: Why are some countries richer than others?
Image of page 39
Image of page 40

You've reached the end of your free preview.

Want to read all 54 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors