Eco notes 3 Unit 2

Eco Notes 3 Unit 2 2/2/15

Inflation- a rise in the general level of prices

Measuring inflation 2% to 3% standard

                Inflation rate- key indicator in economy’s health, measure the percentage increase in price over time

                                Deflation- decline in general price level

                                Disinflation- occurs when inflation rate declines

                (CPI) Consumer Price Index- measures inflation by tracking the yearly price of a fixed basket of consumer goods and services, indicates changes in the price level and cost of living

Solving inflation problems

                Finding inflation using market basket data- (current year market basket value – base year market basket value)/ base year market basket value * 100

                Finding inflation rate using price indexes- (current year price index – base year price index) / base year price index * 100

                Estimating inflation using the rule of 70

                                Rule of 70- used to calculate the number of years for the price level to double at any given rate of inflation formula: 70/ annual inflation rate = years needed to double inflation

                Determining real wages = nominal wages / price level * 100

                Finding real interest rate= nominal interest rate- inflation premium

                                Real interest rate- cost of borrowing or lending money that is adjusted for inflation always expressed as a percentage

                                Nominal interest rate- unadjusted cost of borrowing or lending money

Causes of Inflation

                Demand-pull inflation- caused by excess of demand over output that pulls prices upward

                Cost-push inflation- caused by a rise in per unit production cost due to increasing resource cost

 Effects of inflation

                Anticipated – talking about it in the news already known

                Unanticipated- did not know it was coming happened suddenly

Helped by inflation	Hurt by inflation
Borrowers- debt will be repaid with cheaper dollars than those that were loaned out	Fixed Income Savers Lenders/ Creditors- money worth less when get it back

Eco Notes 2 Unit 2

Eco Notes 2 Unit 2 1/28/15

Expenditure approach ( C+ Ig+ G+ Xn = GDP) adding up the market value of all domestic expenditures made on all final goods and services in a single year

Income Approach (GDP= W+ R+ I+ P+ Statistical Adjustments) adding up all the income earned by households and firms in a single year

                W- Wages ex. compensation of employees, or salaries

                R- Rents ex. 2 ways: from tenant to landlord or from lease payments that corporations pay for the use of space

                In- Interests ex. Money paid by private businesses to the suppliers of loans used to purchase capital

                P- Profit (proprietor’s income) ex. 3 ways to see word profit: corporate income taxes, dividends, undistributed corporate profits

Budget- government purchases of goods and services + government transfer payments – government tax and fee collections. If number is positive= budget deficit    number is negative= budget surplus

Trade- exports – imports

GNP= GDP + net foreign factor income use expenditure approach GDP

Net National Product (NNP) = GNP – Depreciation

Net Domestic Product (NDP) = GDP – depreciation

National income= GDP- indirect business taxes – depreciation – net foreign factor payment  or compensation of employees + rental income + interest income + proprietor’s income + corporate profits

Disposable Personal income (DPI) = national income – personal household taxes + government transfer payments

Eco notes 1 Unit 2

Eco Notes 1 Unit 2 1/27/15

National income accounting- Economist collect statistics on production, income, investing, and saving

2 ways to calculate GDP

1-      How much gas costs

GDP- gross domestic product

GNP- gross national product

GDP- total dollar value of all final goods and services produced within a countries borders within a given year ex. Nike

In GDP- C+ Ig+ G+ Xn

                C- consumption- 67% of economy final goods and services

                Ig- gross private Domestic Investment 4 things under category

1-      Factory equipment maintenance

2-      New factory equipment

3-        Construction of housing

4-      Unsold inventory of product built in a year

                G- Government spending ex. School districts and military

                Xn- Net imports= exports – imports

Not in GDP-

1)      Used or secondhand goods

2)      Intermediate goods – goods and services that are purchase or resale or for further processing or manufacturing  avoid double or multiple counting

3)      Non- market activities- ex. Volunteer activities, babysit, chores, illegal drug sales, trading

4)      Financial transactions  ex. Stocks bonds real estate

5)      Gifts or transfer payments 2 types public and private             

                Private- simply transferring funds from one individual to another ex. Scholarship

                Public- where recipients contribute nothing to current production ex. Social security, welfare

GNP- a measure of what its citizens produced and whether they produced these items within its borders