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Clicker Quiz
1. GDP is the dollar value of all final
goods and services sold in a ___
month period.
•
•
•
•
A) 6
B) 10
C) 12
D) 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 inflation
B) a way to measure happiness
C) a dollar value
D) an indicator of what kinds of things we
are producing
4. GDP = __ + I + G + (X-M)
•
•
•
•
A) A
B) B
C) C
D) D
5. Which actor in the economy is
responsible for most of the
investment that occurs?
•
•
•
•
A) Consumers
B) Businesses
C) Government
D) Military
Is it counted & where??
A haircut from Regis at the mall.
•
•
•
•
A) Yes, consumption
B) Yes, investment
C) Yes, government
D) Not counted
Is it counted & where??
The purchase of the scissors
used to cut your hair.
•
•
•
•
A) Yes, consumption
B) Yes, investment
C) Yes, government
D) Not counted
Is it counted & where??
A haircut Mom gave you.
•
•
•
•
A) Yes, consumption
B) Yes, investment
C) Yes, government
D) Not counted
When Mr. Cook buys his
Ferrari…
• A) 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 Work
Silently
Answers
Georgia Standard & Today’s Big
Question(s)
• How are we doing?
– Compared to others?
– Compared to how we’ve been doing?
Scary!
• The dollar has lost 56% of it’s 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 3
Inflation Part 1
Inflation
• Inflation: P , $ value
• Deflation: 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 let’s say
• You 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 inflation
Note those who are helped, and
those who are hurt.
Story Time
• Once upon a time in Burgerland…
• There were only four jobs:
– Beefers (cowboys)
– Bakers
– Burger store managers
– Bankers
• And only one product…
• BURGERS.
For as long as anyone can
remember…
• The 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.
• That’s $12!
• What is Brenda’s 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
Brenda…
• The 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 charged
• 20% interest
• PLUS
• the rate of inflation (called an adjustable
rate loan)
• She would have come out better.
• Prices doubled. That’s 100% inflation.
• A loan of $10, paid back plus 120%
interest would be $22
Unexpected Inflation
• Hurts:
–lenders at fixed rates
–savers at fixed rates
–fixed-income recipients
• Benefits:
–borrowers at fixed rates
Helped, hurt, or neither??
• Service providers fulfilling long-term
contracts
• Workers with cost-of-living-adjustments in
their contracts
• Banks that have made fixed-rate loans
• Banks that have made adjustable-rate
loans
• Borrowers of fixed-rate loans
• Borrowers of adjustable-rate loans
Helped or Hurt?
A Competition
Helped or Hurt?
Individual Work
Reminders/Hints
• A bond is a loan.
– If I buy a bond from Coca-Cola, I’m loaning
them $.
– They sold me a bond, so they’re 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.
Answers
Clicker Quiz
$1 dollar bought more stuff in
2009 than it did in 2008. The
time between 2008 and 2009
was a period of
• A) inflation
• B) deflation
• C) stagflation
Stagflation is a period of
•
•
•
•
A) Inflation and recession
B) Inflation and deflation
C) Deflation and recession
D) Inflation and rising GDP
Inflation MOST hurts
•
•
•
•
A) lenders at fixed rates.
B) borrowers at fixed rates.
C) lenders at adjustable rates.
D) borrowers at adjustable rates.
Inflation MOST helps
•
•
•
•
A) 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 often
• A) make adjustable-rate loans.
• B) make fixed-rate loans.
Who is hurt MOST by
unanticipated inflation?
• A) savers at a fixed rate of interest
• B) borrowers at a fixed rate of interest
• C) workers with a union cost-of-living
adjustment in their contracts
• D) speculators in gold and other precious
metals
Who benefits MOST from rising
inflation?
• A) owners of stocks
• B) service providers fulfilling long-term
contracts
• C) homeowners paying back fixed-rate
mortgages
• D) retired people living on Social Security
(Social Security has an annual cost-ofliving increase)
Of the following groups, the
one hurt the LEAST by
unanticipated inflation is
• A workers who have cost-of-living
adjustments in their labor contracts
• B people who have saved money in
accounts with a fixed interest rate
• C banks that have made long term, fixed
rate mortgage loans
• D 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%. Sue’s
• 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 4
Inflation Part 2
Auction Time!
MV=PQ
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•
•
•
M: money supply
V: velocity
P: price
Q: quantity (of goods and services)
Causes of Inflation
• Increase in money supply (MV=PQ)
• War
• More demand
Constructing a Price Index
• Inflation 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.).
1st Period
Chad
Seth
Danielle
Zack
Michael
Baggott
Kyle
Kendall
Matth
Nicole
Arron
Hillary
Michael
Brannen
Shannon
Lacey
Haley
Virginia
Brandon
Erin
Morgan
Taylor
Teacher
Desk/
Work Area
2nd Period
Megan
Justin
Xavier
Andrew
Paige
Cyndilee
Chris
Charlee
Ryan
Stacey
Amanda
Chelsea
Brett
Jessica
Tim
Courtney Kylie
Forrest
Lacey
Alison
Daniel
Morgan
Emily
Teacher
Desk/
Work Area
Haley
Jordan
Alex
Avery
4th Period
Dee Dee
Moriah
Kristen
Kayla
Jade
(Empty)
Drew
Steven
Kara
Amber
Bethany
(Empty)
Kevin
Harley
JD
Courtne
y
Nick
Sonia
David
Melissa
Jordan
Edwards
Jonatha
n
Jordan
Marin
Mandie
Lauren
Kayla
Daylan
Catherine
Phillip
Justin
Raven
Ryne
Maggie
Teacher
Desk/ Work
Area
Andre’
Kelsea
With Your Partner
• With 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
Quantity
1. Bread
4 loaves
2.
3.
4.
5.
6.
…10.
Math Review
• Percent 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 IndexContinued
• Price index =
• (selected basket price/ base yr. basket price)X100
• The 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 IndexContinued
• Example:
• The country of Spamelot only makes Spam and
crackers.
•
1960
2010
• P Spam
0.40
1.20
• P 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___
Assignment
• Estimate the rate of inflation between 1999 and
2009.
• 1st: create your market basket by
– selecting AT LEAST 7 items from the list
– determining quantities of each item used per month
• 2nd: multiply Q of each item times the P for
each year, and fill in your chart
• 3rd: Add up your total market basket price for
each year
• 4th: Calculate percent change in your market
basket prices [(new - old)/old]
Prices in 1999
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•
Peanut butter (lb.)- $1.77
•
White flour (lb.)- $0.30
•
White bread (lb.)- $0.87
•
Chocolate chip Cookies (lb.)- $2.61
•
Ground beef (lb.)- $1.38
•
Pork chops, center cut, bone-in, per lb.- $2.95
•
Bologna, all beef or mixed, per lb.- $2.41
•
Chicken breast, bone-in, per lb.- $2.07
•
Cheddar cheese, natural, per lb.- $3.75
•
Apples, red delicious, per lb.- $0.86
•
Bananas, per lb.- $0.49
•
Tomatoes, per lb.- $1.90
•
Lettuce, iceberg, per lb.- $0.65
•
Beans, dried, any type, all sizes, per lb.- $0.69
•
Coffee, 100%, ground roast, all sizes, per lb.- $3.44 •
Average electric bill per month- $84
•
Gasoline, unleaded, per gallon/3.785 liters- $0.97 •
Movie ticket- $5.06
•
US postage stamp- $0.33
•
Bacon (lb.)- $2.59
•
Dozen eggs- $0.89
•
Average rent/housing payment per month- $645.00 •
Prices in 2009
Peanut butter (lb.)- $2.14
White flour (lb.)- $0.52
White bread (lb.)- $1.38
Chocolate chip Cookies (lb.)- $3.11
Ground beef (lb.)- $2.36
Pork chops, center cut, bone-in, per lb.- $3.39
Bologna, all beef or mixed, per lb.- $3.11
Chicken breast, bone-in, per lb.- $2.46
Cheddar cheese, natural, per lb.- $5.01
Apples, red delicious, per lb.- $1.23
Bananas, per lb.- $0.63
Tomatoes, per lb.- $1.66
Lettuce, iceberg, per lb.- $0.94
Beans, dried, any type, all sizes, per lb.- $1.40
Coffee, 100%, ground roast, all sizes, per lb.- $3.68
Average electric bill per month- $126
Gasoline, unleaded, per gallon/3.785 liters- $1.79
Movie ticket- $7.50
US postage stamp- $0.42
Bacon (lb.)- $3.22
Dozen eggs- $1.37
Average rent/housing payment per month- $780.00
And the actual (according to
the CPI) rate of inflation is...
You figure it out!
Major Price Indexes
• Consumer Price Index (CPI)-90,000 items
in 364 categories.
• Implicit GDP Price Deflator- all
goods/services. Base year 1996.
Clicker Quiz
When the value of money was based
on its silver content, new discoveries
of silver were frequently followed by
periods of
•
•
•
•
A recession
B recovery
C shortage
D inflation
The value of a price index in
2000 was 172. What was the
value of that price index in it’s
base year?
•
•
•
•
A) 72
B) 100
C) 136
D) 152
The value of a price index in
2000 was 172. What was the
rate of inflation between the
base year and 2000?
•
•
•
•
A) 72%
B) 100%
C) 136%
D) 152%
The Consumer Price Index
(CPI) is an indicator of which of
the following?
•
•
•
•
A the size of an economy
B the velocity of money
C the level of inflation or deflation
D the presence of a budget deficit or
surplus
If one wanted to know whether
there had been inflation or not,
the BEST measure to observe
would be the
•
•
•
•
A. GDP.
B. business cycle.
C. CPI.
D. national debt
Draw Your Basket
• Draw the basket holding all of the items
you picked.
• To the left of the basket, list the base yr
market basket P & the base yr P index.
• To the right, list the current market basket
P & this yr’s market basket P.
• At the top-center, write the rate of inflation.
• Include at least five colors.
Inflation tends to increase at the end of expansions, &
tends to decrease during periods of recession.
II. Constructing a Price IndexContinued
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•
•
•
•
•
•
Steps:
Select items for a market basket.
Record P of each item.
1st year total = base-year market basket P.
Record P of same market basket each yr.
P index = (new basket P/ base yr. basket P)X100
Inflation = % change in price index, [(new-old)/old]
Inflation By Country
Bell Ringer
• Think about how we defined GDP a few
days ago.
• How could GDP be used to help tell us if
we’re in a recession?
Georgia Standard & Today’s Big
Question(s)
• How are we doing?
– Compared to others?
– Compared to how we’ve been doing?
Ch 13, Section 2 pg. 350
GDP and Changes in the Price
Level
I. Real GDP
• GDP adjusted for inflation.
• Real GDP=
• [GDP from year Y/(price index from year Y)]X100
• This formula sets dollars equal to base year.
Listen
• If we have inflation, what
happens to the price index
values from year to year?
I. Real GDP
• Listen:
• If GDP in 2003 was $10.6 trillion, and the
GDP deflator was 111.9, what was the
Real GDP?
• [$10.6 trillion/111.9]X100= $9.5 trillion
• $9.5 trillion is 2003 GDP measured in
1996 prices.
•
•
•
•
•
•
•
•
•
I. Real GDP
Listen
GDP in 1999 was $9.22 trillion.
Remember, the
GDP in 2009 was $14.25 trillion. formula for percent
change is:
GDP increased by 55%.
[(new-old)/old]X100
Assignment:
Divide 2009 GDP by your 2009 price index.
Multiply this value by 100.
Now you have 2009 GDP in 1999 dollars!
Determine the % change in YOUR Real
GDP between 1999 and 2009.
II. New Graph
• P level measures P
of everything.
• RGDP measures Q
of everything.
III. Aggregate Demand
• D for all goods/
services.
• AD increases if
– C, I***, G, or Nx
– money supply
II. Aggregate Supply Continued
• Increases if:
– input costs or i
– productivity or
technology
Decreases in the prices of oil, steel, etc.
can cause Ag. Supply to increase.
Causes of Inflation
• Demand-pull inflation
• Cost-push inflation - during
stagflation
• Growth in money supply.
• Wage-price spiral - higher
Ps, then higher wages, then
higher Ps...
Mr. Cook’s Crazy
Argument
• Listen:
• Inflation isn’t necessarily bad. In fact, a
little inflation is often a good thing.
• Think about the AS/AD curves.
• An increase in AD reflects a growing
economy, yet causes a higher price level.
Inflationland
• In Inflationland, they have inflation at the
relatively high rate of 7% a year.
• The inflation rate is always 7%.
• Banks expect inflation to stay at 7%, and
make decisions accordingly.
• Businesses give all workers a 7% raise
every year.
• The government raises taxes 7% every
year.
• Who does inflation hurt in this country????
III. Costs of Inflation
• Shoe-Leather
• Menu
Inflation By Country
Inflation By Country
It’s a Mystery!
• What was happening to prices in Spamelot
between 1960 and 2010????
• P index =
• (new basket P/ base yr. basket P)X100
• Base Year price index is ALWAYS 100!
• Inflation = % change in price index,
• Percent change = [(new-old)/old]
Listen
• If we have inflation, what
happens to the price index
values from year to year?
Review
• P index =
• (new basket P/ base yr. basket P)X100
• Base Year price index is ALWAYS 100
• Inflation = % change in price index
• Percent change is always: [(new-old)/old]
Review
• Example:
• The country of Spamelot only makes Spam and
crackers.
•
1960
2010
• P Spam
0.40
2.50
• P Crackers
0.60
1.50
• Mkt Basket P
____
____
• P Index
100
____
• Inflation from 1960-2010
_____
VII. Major Price Indexes
• Consumer Price Index (CPI)-90,000 items
in 364 categories.
• GDP Deflator- all goods/services.
1. GDP is the dollar value of all final
goods and services sold in a ___
month period.
•
•
•
•
A) 6
B) 10
C) 12
D) 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 inflation
B) a way to measure happiness
C) a dollar value
D) an indicator of what kinds of things we
are producing
4. GDP = __ + I + G + (X-M)
•
•
•
•
A) A
B) B
C) C
D) D
5. Which actor in the economy is
responsible for most of the
investment that occurs?
•
•
•
•
A) Consumers
B) Businesses
C) Government
D) Military
GDP Worksheet
• Follow all directions
Real GDP
• GDP adjusted for inflation.
• Real GDP=[GDP/(GDP deflator)]X100
• This formula sets dollars equal to base year.
The oil crisis of 1973 caused stagflation. High oil prices caused a recession and
inflation at the same time.
High inflation + falling real GDP = STAGFLATION
GDP- 2007
Real GDP Growth - 2007
Inflation Review
• Inflation: P , $ value
• Deflation: P , $ value
• Stagflation: recession + inflation at same
time.
• Listen:
• U.S. has had inflation for 50+ years, avg.
rate = 4% /yr.