Unit 2 - Feb. 10 (Types of Inflation)

Types of Inflation

1. Cost Push Inflation - higher production cost, which increases prices. Usually the result of a supply shock. Increasing costs pushes producers to increase prices.

• Ex.) If there is a drought causing crops to die, farmers will increase the price of their crops.

1. Demand Pull Inflation - too many dollars chasing too few goods. Demand pulls up prices, therefore you create a shortage and an over-heated economy, with excessive spending but the same amount of goods. 

• Ex.) Lil Wayne's concert price are going to increase, because there is only a limited number of seats.

1. Political Panic - depression and recession.   

How inflation helps or hurts people.

• Hurts
• Leaders - loan money at a fixed rate.
• Fixed Income - social security.
• Savers
• Fixed Wages - teachers whose wages are locked in.
• Helps
• Debtors - depending on the interest rate.

Unit 2 - Feb. 6 (Inflation vs. Deflation)

Consumer Price Index (CPI) - Measures the cost of the market basket of goods of a typical urban American family.

• Formula : CPI = (Cost of market basket in a given year / Cost of market basket in a base year) x 100

Inflation vs. Deflation

Inflation	Deflation
General rise of the price level.	Fall of the price level.
Ex. : Gas price rises	Ex. : Gas price drops

Rate of Inflation

• [(CPI₂ – CPI₁) / CPI₁] X 100

Gross Private Domestic Investment

• Net Private Domestic Investment + Depreciation (consumption of fixed capital).

Nominal GDP vs. Real GDP

Nominal GDP (Inflation)	Real GDP (Economic Growth)
Value of output produced in prices.	Value of output produced in constant or base year prices.
Can increase from year to year, if either output or prices increases.	Can be increase from year to year, only if output increases.
Formula : P x Q	Formula : P x Q

Ex. : Determine nominal GDP in Year 4, using the following info:
   In Year 1, the base year, 10 computers sold @ $2,000 each and 15 televisions sold @ $500 each. In Year 4, 17 computers sold @ $2,200 each and 20 televisions sold @ $550 each. 

	Computers	Televisions
Year 1 (Base Year)	10 for $2,000 = $20,000	15 for $500 = $7,500
Year 4	17 for $2,200 = $37,4000	20 for $550 = $11,000

	Real GDP	Nominal GDP
Year 1 (Base Year)	----------------	----------------
Year 4	$2,000(17) + $500(20) = $44,000	$37,400 + $11,000 = $48,400

GDP Deflator

• Formula : (Nominal GDP / Real GDP) x 100 
• In base year, the GDP Deflator = 100.
• Years after the base year, the GDP Deflator > 100.
• Years before the base year, the GDP Deflator < 100.

More Informations and Example in this video.

Calculating GDP

GDP Formulas

Expenditure Approach (Used to calculate goods/services)
 GDP = C + Ig + G + Xn

• C - consumption (personal). (Buying)
• Ig - gross private domesticated investment. (Inventory)
• G - government spending
• Xn - net export. (Exports - Imports).

Income Approach (Used to calculate factor of production)

 GDP = W + R + I +P + Statistical Adjustments

• W - wages (salaries/compensation)
• R - rents (rental income)
• I - interest (interest income)
• P - proprietor's income 
• Statistical Adjustments - add to match with the expenditure approach.

Budget

 Transfer payments + Government Purchase Goods & Services  - Government Tax & Fee Collection.

Deficit (+)                 · Surplus (-)

Trade
 Export - Import

Surplus (+)                ·Deficit (-)

National Income 
 NI = Compensation for Employees + Proprietor's Income + Rental Income + Interest Income + Corporation Profit
 NI = GDP - Indirect business tax - Depreciation - Net foreign factor payment. 

Disposable Income
 DPI = NI - Household Income + Government Transfer Payment

Net Domestic Product
 GDP - Depreciation

Net National Product
 GNP - Depreciation

Gross National Product
 GDP - Net foreign factor payment. 

What Counts in GDP?

Unit 2 - Feb. 3 (GDP)

•  Gross Domestic Product - The total value of all final goods/services produced within a country's border within a given year. All production or income earned in the U.S. 
• Ex. : Toyota - the product finishes on American soil, even if the company is located in Japan.

Formula = C + Ig + G + Xn

• C - consumption (personal). (Buying)
• Ig - gross private domesticated investment. (Inventory)
• G - government spending
• Xn - net export. (Exports & Imports).

·  Gross National Product - The total value of all final goods/services produced by Americans by a given year.

o Ex. : American citizen working in another country.