Bell work: Freyonomy Pay yourself and pay your Mon/Tues bills
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Transcript of Bell work: Freyonomy Pay yourself and pay your Mon/Tues bills
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Bell work: FreyonomyPay yourself and pay your Mon/Tues bills
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InflationStandard 5 Notes Part I
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Inflation
Inflation- a sustained rise in the level of prices generally or a sustained decrease in purchasing power.
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What causes inflation?
Demand-pull inflation- results when total demand rises faster than the production of goods and services
"more money chasing the same amount of goods.“
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What causes inflation? Cost-push inflation- results when
increases in the costs of production push up prices.◦ Inputs like labor, land, capital, and
management◦ Wage-price spiral- a cycle that
begins with increased wages, which lead to higher production costs, which in turn result in higher prices, which result in demands for higher wages.
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Cost-push Inflation
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What is the impact of inflation?
Decreasing Value of the Dollar◦ people on fixed incomes are hit hard. They do not receive wage increases. ◦ EX: People on social security
Increasing Interest Rates◦ borrowing money becomes more expensive to keep up with the rate of
inflation. Credit card payments rise. Consumers buy less items that require borrowing like houses and cars.
◦ Ex. Fred wants to buy a car valued at $10,000 Fred saved up for a plan where the interest rate is 5% ($188 a month) Inflation caused interest rates to increase to 10% (now $212 a month) Over his 5 yr loan period, Fred will end up paying over $1,425 more for his loan
at the higher rate
Decreasing Real Returns on Savings◦ if the inflation rate is higher than your interest rate in your savings account
or bond, you can lose money that you are trying to save.
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InflationHow is it measured?
◦ Consumer Price Index (CPI)- a measure of changes in the prices of goods and services commonly purchased by consumers.
◦ Producer Price Index (PPI)- a measure of change in wholesale prices
◦ Inflation Rate- the rate of change in prices over a set period of time.
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Types of InflationCreeping inflation- small rate of inflation
over a long period of timeGalloping Inflation- a rapid increase in price
levelHyperinflation- a rapid, uncontrolled rate of
inflation in excess of 50% per monthDeflation-a decrease in the in the general
price level
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Deflation
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GDP
Standard 5
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Gross Domestic Product (GDP)
• Market value of all final G/S produced within a nation in a given time period
• To be included, a G/S must be final (intermediate- fabric, final- shirt) and produced within borders
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• Calculating GDP:Consumption (C)
+ Investment (I) + Government Spending (G) + Net Exports (Foreign trade, X)
• When GDP is growing– an economy creates more jobs and more business
opportunities
• When GDP declines– jobs and more business opportunities become less plentiful
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2 Types:
• Nominal GDP- stated in the price levels for the year in which the GDP was measured
• Real GDP- nominal GDP adjusted inflation (for changes in prices)– An estimate of the GDP if prices were to remain
constant from year to year
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What GDP Does Not Measure
• Nonmarket activities (i.e. home childcare or performing one’s own home repairs)
• Underground economy (i.e. illegal- drug dealing and legal- plumber who works for cash)
• Quality of Life (GDP does not show how G/S are distributed- 10%+ of Americans live in poverty)
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Just checking…
• If you get paid in cash to baby-sit, mow lawns, or do other chores for neighbors, are you part of the underground economy? Why or why not?
• Yes, if you are required to file taxes and do not report the income to the IRS
• No, if you do report taxable income
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How economic value might be assigned to homemaking activities:
• Choose a partner.• Attempt to determine a dollar value for one
adult’s full-time homemaking activities for one year.
• Take notes about the process you use to arrive at that figure.
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Bell work Freyonomy
1. Pay your Wednesday/ Thursday bills
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Marriage?
Benefit= can split the mortgage bill with someone else
Cost= have to pay for the wedding
• Small Wedding– $1,500– Or $125 a month
• Medium Sized Wedding– $10,000– Or $835 a month
• Large Wedding– $20,000– Or $1,670 a month
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GDP Timeline
_______________________________________1912
2012
_______________________________________2012
2112
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Business Cycle
• A series of periods of expanding and contracting economic activity• Four Phases:
– Expansion• A period of economic growth (an increase in a nation’s real GDP)
– Peak• The point at which GDP is highest
– Contraction• Sometimes a recession (6 months+) or depression (extended period of high
unemployment and limited business activity)– Trough
• The point at which real GDP and employment stop declining
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How economic growth is measured• Real GDP per capita– Real GDP/Total Population– Reflects each person’s share of real GDP– Some people will have more money, others less– Does not measure quality of life
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One way to understand business cycles is through demand and supply…
• Aggregate demand- the total amount of G/S that households, businesses, government and foreign purchases will buy at each and every price level
• Aggregate supply- the total amount of G/S that producers will provide at each and every price level
http://www.classzone.com/cz/books/econ_cnc/resources/htmls/animated_economics/ec12_anim_macroequilib.html
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Aggregate Demand• Increase in aggregate
demand• Expansion phase
• Decrease in aggregate demand
• Contraction phase
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Why do Business Cycles Occur?• Business decisions
• Aggregate supply increase can cause an economic expansion
• Changes in interest rates• Rise in interest rates= decrease in AD (aggregate demand)• Fall in interest rates= increase in AD
• Consumer expectations• Ways consumers feel about prices, job prospects, businesses activity
cause changes in aggregate demand
• External issues (i.e. Hurricane Katrina, oil embargo of 1973)
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Business Cycles in U.S. History
• The Great Depression– Real GDP declined by about a third– Sales in some big businesses
declined by as much as 50 percent– 1 in 4 people were unemployed
• The New Deal– Government agencies created– Many Americans were put back to
work– Some trees in Eagle Creek Park
were planted during this time