Congress tells the fed what they should focus on Dual Mandate Promote

Congress tells the fed what they should focus on dual

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Congress tells the fed what they should focus on… “Dual Mandate” “Promote effectively the goals of maximum employment, stable prices* and moderate long-term interest rates” Stable prices would be 2% inflation per year Monetary policy is changes in interest rate & M1 & M2 to achieve these goals Fed head chair: Janet Yellen Also heads the “Federal Open Market Committee” (FOMC) Decide what the fed can do to reach goals Key fed tool- federal funds interest rates (FOMC sets this) .5 rn What banks charge each other for overnight loans A “wholesale” interest rate It in turn influences other interest rates Notes on Jan 31
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Prices rose of this 50 year period (inflation) “History doesn’t repeat, but it does rhyme” Question = The year that had the highest prices also had the highest inflation rate? No. Prices are at their highest today, but prices rose most rapidly during the 70’s because that is the time period with the steepest slope
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Helps answer the previous question ^^^^^ GDP Deflator is blue about 112% today and the inflation is red around 1.3%. High red inflation means prices are rising rapidly during that time period GDP deflator and Production since 1970 Question - which most accurately reflects the U.S. economy since 1970: Production ______ rises and prices ___ rise. Usually, always Deflation is a fall in prices Disinflation is less inflation Question: In these data (deflator), the U.S. __ had deflation and ___ had disinflation in this chart (the same one of this page) Has not, has Question: How do we measure inflation for the entire economy? GDP Deflator= (nominal/real)100 It is a price index that measures the “price level” (versus its
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base year) Inflation is the percent change in a price index PART E The consumer price index Question - On average, parents of Penn State students earn above $100,000. Say that in 2047 you earn $200,000. Is this enough to say that in a material sense that you’ll be better off than them? No. You need more information CPI can be used to remove inflation from nominal prices and wages Def: nominal (money) price or wage- how many dollars it takes to buy something or hire someone Def: Real price or wage- nominal value with inflation explicitly removed Question- What would be different in your calculation in Step 2 compared to Step 1 in your worksheet? Prices Question- CPI is best thought of as Not in dollars- dollars cancel out A measure of prices versus a base year- answer CPI Is the ratio of the price of a market basket of goods & services for the typical consumer in one month compared to the (arbitrary) base period*100 It measures price level for consumers Base period: 1982-84 (CPI=100) Actual CPI weights of market basket items Food & Beverages 15.3% Housing- rent 24.0% Housing- mortgage 17.1% Apparel 3.6% Transportation 16.9% Med care 7.1% Recreation 6% Edu/Comm 6.8% Other goods & service 3.4% Feb 2 CPI 2015= 238.0 CPI 2016=243.0
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