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Grab a Calculator(unless you already have one)
Pepperonia & Anchovia
And The Winner Is...
Now, Do One On Your Own.You can do it!
1. GDP is the dollar value of all final goods and services sold in a ___ month period.A) 6B) 10C) 12D) 24
2. Which of the following purchases is included in GDP? A) A haircut.B) A used car.C) An illegal drug.D) An oil refinery buys oil from a drilling company.
3. Which best describes GDP?A) a way to measure inflationB) a way to measure happinessC) a dollar valueD) an indicator of what kinds of things we are producing
4. GDP = __ + I + G + (X-M)A) AB) BC) CD) D
5. Which actor in the economy is responsible for most of the investment that occurs?A) ConsumersB) BusinessesC) GovernmentD) Military
Is it counted & where??A haircut from Regis at the mall.A) Yes, consumptionB) Yes, investmentC) Yes, governmentD) Not counted
Is it counted & where??The purchase of the scissors used to cut your hair.A) Yes, consumptionB) Yes, investmentC) Yes, governmentD) Not counted
Is it counted & where??A haircut Mom gave you.A) Yes, consumptionB) Yes, investmentC) Yes, governmentD) Not counted
When Mr. Cook buys his FerrariA) GDP & consumption will both rise.B) Consumption & imports will rise, GDP will stay the same.C) Consumption & exports will rise, GDP will stay the same.D) Imports will rise, GDP will fall.E) GDP will stay the same, and no sectors will be affected.
Independent GDP WorkSilently
Georgia Standard & Todays Big Question(s)How are we doing?Compared to others?Compared to how weve been doing?
Scary!The dollar has lost 56% of its value since 1992.Or, a dollar today will buy the same amount of stuff as $0.64 would buy in 1992.
From year to year, a dollar then vs. a dollar now.
Macroeconomics Lesson 3Inflation Part 1
InflationInflation: P , $ valueDeflation: P , $ value Stagflation: recession + inflation at same time.
For the last 50 years, the U.S. has had an avg. inflation rate of 4% /yr.
Do recessions have any effect on the rate of inflation? If so, what? Are their any exceptions to your answer? When?
So lets sayYou get a raise of 5% this year.But inflation was 5% this year.
Your nominal pay rose.What happened to your PURCHASING POWER???IT STAYED THE SAME
Stories of extreme inflationNote those who are helped, and those who are hurt.
Story TimeOnce upon a time in BurgerlandThere were only four jobs:Beefers (cowboys)BakersBurger store managersBankersAnd only one productBURGERS.
For as long as anyone can rememberThe price of a burger has been $1.All of the burger joints voluntarily charge $1.
Bill the baker wants to expand his business So he borrows $10 from Brenda the banker, at 20% simple interest (fixed rate),to be paid back in one year.Thats $12!What is Brendas profit?How many burgers will Brenda be able to buy with her profits?(All of the burger joints voluntarily charge $1.)
But, before Bill is due to pay BrendaThe burger store managers (Bruce, Belinda, Barry, and Bedelia) unexpectedly raise their prices from $1 to $2 a burger!!
Who is hurt by this change of events?Who is helped?How could Brenda have kept from getting hurt?
If Brenda had charged20% interestPLUSthe rate of inflation (called an adjustable rate loan)
She would have come out better.Prices doubled. Thats 100% inflation.A loan of $10, paid back plus 120% interest would be $22
Unexpected InflationHurts:lenders at fixed ratessavers at fixed ratesfixed-income recipientsBenefits:borrowers at fixed rates
Helped, hurt, or neither??Service providers fulfilling long-term contractsWorkers with cost-of-living-adjustments in their contractsBanks that have made fixed-rate loansBanks that have made adjustable-rate loansBorrowers of fixed-rate loansBorrowers of adjustable-rate loans
Helped or Hurt?A Competition
Helped or Hurt?Individual Work
Reminders/HintsA bond is a loan.If I buy a bond from Coca-Cola, Im loaning them $.They sold me a bond, so theyre borrowing from me.Dividends are profits paid to stockholders. When prices rise, dividends rise.Income tax is a percentage of your income.When prices rise, incomes rise.
$1 dollar bought more stuff in 2009 than it did in 2008. The time between 2008 and 2009 was a period ofA) inflationB) deflationC) stagflation
Stagflation is a period ofA) Inflation and recessionB) Inflation and deflationC) Deflation and recessionD) Inflation and rising GDP
Inflation MOST hurtsA) lenders at fixed rates.B) borrowers at fixed rates.C) lenders at adjustable rates.D) borrowers at adjustable rates.
Inflation MOST helpsA) lenders at fixed rates.B) borrowers at fixed rates.C) lenders at adjustable rates.D) borrowers at adjustable rates.
In order to protect themselves in case of unanticipated inflation, lenders oftenA) make adjustable-rate loans.B) make fixed-rate loans.
Who is hurt MOST by unanticipated inflation?A) savers at a fixed rate of interestB) borrowers at a fixed rate of interestC) workers with a union cost-of-living adjustment in their contractsD) speculators in gold and other precious metals
Who benefits MOST from rising inflation?A) owners of stocksB) service providers fulfilling long-term contractsC) homeowners paying back fixed-rate mortgagesD) retired people living on Social Security (Social Security has an annual cost-of-living increase)
Of the following groups, the one hurt the LEAST by unanticipated inflation isA workers who have cost-of-living adjustments in their labor contractsB people who have saved money in accounts with a fixed interest rateC banks that have made long term, fixed rate mortgage loansD consumers who buy goods and services at prevailing market prices
Sue got a 10% raise at work this year, & the rate of inflation was 12%. Sues A) nominal pay rose and her purchasing power rose.B) nominal pay rose and her purchasing power fell.C) nominal pay fell and her purchasing power rose.D) nominal pay fell and her purchasing power fell.
Macroeconomics Lesson 4Inflation Part 2
MV=PQM: money supplyV: velocityP: priceQ: quantity (of goods and services)
Causes of InflationIncrease in money supply (MV=PQ)WarMore demand
Constructing a Price IndexInflation can distort GDP from year to year.A price index measures P changes.
Select goods & services for a market basket.Add the price of each of these goods, to get the base-year market basket price.Find the market basket price at regular intervals (monthly, yearly, etc.).
With Your PartnerWith your partner, think of ten things that the average family spends money on in a month. These things can be goods or services. Write these down on a sheet of paper, along with your guesses as to quantity consumed. Item Quantity1. Bread 4 loaves188.8.131.52.6.10.
Math ReviewPercent Change
the formula: [(new-old)/old] X 100
so if something increases from 5 to 7, the percent change is[(7-5)/5] = 0.4 = 40%
Constructing a Price Index-ContinuedPrice index = (selected basket price/ base yr. basket price)X100The base-year price index always = 100!
Inflation = % change in price index, [(new-old)/old]
Inflation between 84 & 98:(163-100)/100 = 0.63 = 63%Inflation between 98 & 03:(183.7-163)/163=0.13=13%
Constructing a Price Index-ContinuedExample:The country of Spamelot only makes Spam and crackers. 1960 2010P Spam 0.40 1.20P Crackers 0.60 1.80 Mkt Basket P ____ ____P Index (base year 1960) 100 ____Inflation from 1960-2010 _____
On the back of your partner assignment...Put these headings at the top:Item Q P-item 99 Total P 99 P-item 09 Total P 09
Near the bottom of your page, write:Total Market Basket P 99 ___Total Market Basket P 09 ___% inflation 99-09___
AssignmentEstimate the rate of inflation between 1999 and 2009.1st: create your market basket by selecting AT LEAST 7 items from the listdetermining quantities of each item used per month2nd: multiply Q of each item times the P for each year, and fill in your chart3rd: Add up your total market basket price for each year4th: Calculate percent change in your market basket prices [(new - old)/old]
Prices in 1999 Prices in 2009Peanut butter (lb.)- $1.77White flour (lb.)- $0.30White bread (lb.)- $0.87Chocolate chip Cookies (lb.)- $2.61 Ground beef (lb.)- $1.38Pork chops, center cut, bone-in, per lb.- $2.95Bologna, all beef or mixed, per lb.- $2.41Chicken breast, bone-in, per lb.- $2.07Cheddar cheese, natural, per lb.- $3.75Apples, red delicious, per lb.- $0.86Bananas, per lb.- $0.49Tomatoes, per lb.- $1.90Lettuce, iceberg, per lb.- $0.65Beans, dried, any type, all sizes, per lb.- $0.69Coffee, 100%, ground roast, all sizes, per lb.- $3.44Average electric bill per month- $84Gasoline, unleaded, per gallon/3.785 liters- $0.97Movie ticket- $5.06US postage stamp- $0.33Bacon (lb.)- $2.59Dozen eggs- $0.89Average rent/housing payment per month- $