REVIEW
1. What is the fundamental economic problem?
2. What are the fundamental questions in economics?
3. What is opportunity cost?
4. What are the four factors of production?
5. What is a synonym for factors of production?
6. What is a corporation?
7. What two types of costs make up total cost?
8. What is the goal of all firms?
9. What is the equation for profit?
10.Define GDP.

REVIEW
1. What are the keys to capitalism?
2. Law of Demand: A decrease in ______________would cause an increase in quantity demanded?
3. What type of business organization has limited liability?
4. What is entrepreneurship?
5. Minimum wage is an example of a price _________. This type of government interference in the market causes a _____________.
6.
Market clearing price is another term for ___________.

WHY IS IT BAD TO STORE YOUR SAVINGS
UNDER YOUR MATTRESS?

HOW MUCH DOES IT COST???????

HOW MUCH DOES IT COST??????

HOW MUCH DOES IT COST???????

HOW MUCH DOES IT COST?????

WHAT IS IT?????????????
Inflation is when prices increase over time
Deflation is when prices decrease over time
1-2% is acceptable
Creeping, Galloping, Hyper are unacceptable
Inflation is measured by Price Indexes

HYPER INFLATION

PRICE INDEXES
CPI- The consumer price index. Measures the change in prices of consumer goods in various categories.
PPI- The producer price index. Measures the change in prices of capital goods and raw materials.
GDP Deflator- The most comprehensive price index a combination of the CPI and the PPI. Measures the change in the price of over
40,000 products.

PRICE INDEXES
Measure the price change in a market basket of goods.
What is in the CPI?
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

WHAT IS THIS CARTOON SAYING?

INFLATION SUMMARY VID http://www.youtube.com/watch?v=SmOMp8gycMA&feature=related

REVIEW
1. What is the term for rising prices?
2. Explain the three price indexes and how they measure inflation.
3. EOCT REVIEW:
1.
What is the law of supply?
2.
What is the law of demand?
3.
Give me one inelastic good… why?
4.
Give me one elastic good… why?
5.
What is the profit maximizing point of output?

EXAMPLE
Product
Milk
Eggs
Chicken
Tooth Paste
Coke
Gas
Bread
Total
Value
% Inflation
(CY/BY) x 100
Market Basket of Products
Base Year
1.00
.75
1.50
.75
.50
.75
.50
$ 5.75
100
0%
Current Year
3.00
1.50
2.00
1.00
1.25
2.50
1.50
12.75
(CY / BY)100 =(x)= 221.7 x-100= 121.7%

CALCULATE THE PRICE INDEX
Using year 1 as the base year, what is CPI in years 1, 2, and 3?
What was the rate of inflation over the base year in years 2 and 3?

WAS BABE RUTH’S SALARY GOOD COMPARED
TO TODAY’S PLAYERS?
Babe’s 1931 salary - $81,000
CPI 1931 – 15.2
CPI 2005 – 195
Amount in today’s $’s = (P level today/P level in year T) * 81,000

WHY IS UNDERSTANDING INFLATION
IMPORTANT?

CPI FOR FOOD

CPI FOR MEDICAL CARE

CPI FOR HOUSING

REVIEW
1. What is the term for rising prices over time?
2. What do we call falling prices over time?
3. CPI, PPI or GDP Deflator?
1.
Measures the prices of inputs such as raw materials and capital equipment
2.
Measures goods and services included in GDP
3.
Measures the prices of goods purchased by households
4. If CPI in 2012 is 130 compared to the base year, what is the rate of inflation?
5. If CPI in 2012 is 90 compared to the base year, what happened to prices in the economy?
6. What is the difference between real and nominal GDP?

WHAT CAUSES INFLATION?
?

WHAT CAUSES INFLATION??
Demand-Pull Inflation – buy more than the economy can produce

WHAT CAUSES INFLATION??
Cost-Push Inflation – rising costs

OTHER CAUSES
1. Demand pull
2. Cost push – what is an example?
3. Government Deficits
4. Increase in money supply

2012 CPI = 5
1913 CPI = 100
If you took $1 from 1913 and flew in a time machine to 2012, how much would that $1 be worth?
CPI 2012/CPI 1913 * $1= 5/100=
.05 * $1= $.05

WHAT WOULD BE AN ACTION BY A COUNTRY’S
GOVERNMENT TO HELP THEM GET OUT OF
DEBT?
Who would this upset? Is this a form of taxation?

INFLATION….GOOD???? BAD????
H E L P E D B Y I N F L A T I O N
-Borrowers with fixed interest payments
-Government
(borrower) in debt
H U R T B Y I N F L A T I O N
-Banks/lenders with fixed rate loans
- People living on fixed incomes

What do you think the U.S. deficit is?

$10,000

$1,000,000 can be stuffed in a grocery bag.

$100 million can fit on a pallet

$1 Billion

$1 Trillion DOUBLE STACKED
Projected 2010 deficit is $1.7 trillion

To put things in perspective, current estimates put the number of stars in the Milky Way at somewhere between 100 and 400 billion.