Econ 4.3

Wednesday, February 17, 1999

Announcements: Homework Assignment #3 will be posted on the webpage. The Chapter 8 and 9 quizzes will be online soon. The next exam will be Friday, February 26th.

Lecture notes:  

Price Indices and Inflation

• GDP = C + I + G + (EX-IM) = AD = AE
• Selected price comparisons
• General Price level and inflation
• Major Price indices
• Price Index Construction
• Real GDP, Price CHanges, Economic growth
• Inflation in the Economy
• Business Cycle Phases

Types of Unemployment (cont'd)

• Seasonally Adjusted Unemployment Rate
  • Occurs every spring as College and High School students are let out
  • Raises the unemployment rate

• Inflation: a rise in the general price level
• Movements in price index indicate what his happening to prices
• Consumer Price Index: A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer
• Producer Price Index: Measures of prices that producers receive for products at all stages in the production process

• Price Index = (Cost in Year 2 / Cost in Base Year) (100)

• Purchasing Power of $1 in Year 2 compared to Purchasing Power of $1 in Year 1
• Value in Year 2 = (Purchase Cost in Year 1 / Purchase Cost in Year 2) (100)

Unaticipated Inflation

• Inflation Losers:
  • Luxury Item sellers
  • Consumers whose real income declined
  • Normal Goods sellers
  • Lenders with fixed interest rate contracts
  • Widows, orphans, retirees on fixed incomes