1. O2/25/15 WARM-UP: How do you know if a person is healthy? What are some indicators of physical health? Explain. WARM-UP: How do you know if a person is healthy? What are some indicators of physical health? Explain.

2. Learning Goal Students will be able to… Students will be able to… Identify the three major macroeconomic goals Identify the three major macroeconomic goals Define inflation Define inflation Explain how inflation is calculated Explain how inflation is calculated Identify winners and losers in the face of inflation Identify winners and losers in the face of inflation

3. Macroeconomic Indicators & Goals Price Level Price stability Inflation rate of no more than 2% per year Real GDP High & sustained growth Ideally (for the U.S.) growth of 3% per year Unemployment Full Employment Unemployment rate of 5-6%

4. 03/02/15 Warm-up: In 1950 the price of a gallon of gas was $0.27 and the price of a gallon of milk was $0.84. Has the price of gas increased? Milk?

5. How much money would you need to have today to have the same purchasing power as $1,000,000 in 1967? Explain. BLS Inflation Calculator

8. What American movies have been the most successful in terms of domestic box office sales? Identify at least three movies you think are in the top ten.

9. Top Movies: Nominal Millions of Dollars 1. 1.Avatar ($760) 2. 2.Titanic ($658) 3. 3.The Avengers (623) 4. 4.The Dark Knight ($533) 5. 5.Star Wars Episode I ($474) 6. 6.Star Wars Episode IV ($460) 7. 7.The Dark Knight Rises ($448) 8. 8.Shrek 2 ($441) 9. 9.E.T.: The Extra Terrestrial ($435) 10. 10.Hunger Games: Catching Fire ($424)

10. Top Movies: Real Millions of Dollars 1. 1.Gone with the Wind ($1,646) 2. 2.Star Wars Episode IV ($1,451) 3. 3.The Sound of Music ($1,160) 4. 4.E.T.: The Extra Terrestrial($1,156) 5. 5.Titanic ($1,104) 6. 6.The Ten Commandments ($1,067) 7. 7.Jaws ($1,043) 8. 8.Dr. Zhivago ($1,011) 9. 9.The Exorcist ($901) 10. 10.Snow White and the Seven Dwarfs ($888)

11. Inflation

12. The Price Level What goods/services are rising in price recently? What goods/services are rising in price recently? What goods/services are falling in price recently? What goods/services are falling in price recently? Prices for some goods may be falling and others may be rising at any given time Prices for some goods may be falling and others may be rising at any given time aggregate price level: a measure of the overall level of prices in the economy aggregate price level: a measure of the overall level of prices in the economy

13. What is inflation? An increase in the aggregate price level A decrease in purchasing power

14. Calculating Inflation Market basket – representative sample of goods and services purchased; consumption bundle Economists track changes in the cost of the market basket Consumer Price Index (CPI) – most commonly used measure of inflation Calculated by Bureau of Labor Statistics (BLS) Tracks purchases of urban consumers Compare current prices to base year prices (1982-1984) Price index in base year = 100

15. Makeup of CPI

16. Calculating Inflation price index in a given year = Cost of market basket in a given year Cost of market basket in base year x 100 Inflation Rate = Price index in year 2 – Price index in year 1 Price index in year 1 x 100

17. Calculating the Cost of Market Basket GoodQ Year 1 Price Cost Year 1 Year 2 Price Cost Year 2 Orange200$0.20$40$0.40$80 Lemon500.60$301.00$50 Grapefruit1000.25$250.45$45 Market Basket Total$95$175 price index in Year 2 = $175 $95 x 100 = 184.2 the overall price level has increased 84.2% since Year 1

18. Assume… In Year 1 the market basket cost $600 In Year 5 the market basket cost $750 Calculate the price index for year Year 5 Price Index = $750 $600 x 100 = 125

19. Assume… In August 2013 the CPI was 234 In August 2014 the CPI was 238 Calculate the rate of inflation between 2013 & 2014 Inflation Rate= 238-234 234 x 100 = 1.7% Recent Inflation Data

20. Copy Winner/Loser Scenarios– Explain your Response HURT OR GAINS OR UNDECIDED 1.Banks extend many fixed rate loans 2.A farmer buys machinery with a fixed rate loan to be repaid over 10 years 3.Your family buys a new home with an adjustable rate mortgage 4.Your savings from your summer job are in a savings account with a fixed rate of interest

21. 5.A widow lives entirely on income from fixed rate corporate bonds. 6.A retired couple lives entirely on income from a fixed rate pension the woman receives from her former employer. 7.A retired man lives entirely on income from Social Security 8.A retired bank official lives entirely on income from stock dividends

22. 9.The federal government has a $18 trillion debt. 10.A firm signs a contrast to provide maintenance services at a fixed rate for the next 5 years.

23. 9/29/14 Warm-up: Warm-up: What American movies have been the most successful in terms of domestic box office sales? Identify at least three movies you think are in the top ten.

24. Top Movies: Nominal Millions of Dollars 1. 1.Avatar ($760) 2. 2.Titanic ($658) 3. 3.The Avengers (623) 4. 4.The Dark Knight ($533) 5. 5.Star Wars Episode I ($474) 6. 6.Star Wars Episode IV ($460) 7. 7.The Dark Knight Rises ($448) 8. 8.Shrek 2 ($441) 9. 9.E.T.: The Extra Terrestrial ($435) 10. 10.Hunger Games: Catching Fire ($424)

25. Top Movies: Real Millions of Dollars 1. 1.Gone with the Wind ($1,646) 2. 2.Star Wars Episode IV ($1,451) 3. 3.The Sound of Music ($1,160) 4. 4.E.T.: The Extra Terrestrial($1,156) 5. 5.Titanic ($1,104) 6. 6.The Ten Commandments ($1,067) 7. 7.Jaws ($1,043) 8. 8.Dr. Zhivago ($1,011) 9. 9.The Exorcist ($901) 10. 10.Snow White and the Seven Dwarfs ($888)

26. LEARNING GOALS STUDENTS WILL BE ABLE TO… STUDENTS WILL BE ABLE TO… Calculate a price index Calculate the rate of inflation Identify problems in the way inflation is calculated

28. 9/30/14 WARM-UP: Why do we care about inflation? Explain. WARM-UP: Why do we care about inflation? Explain.

29. CPI Controversy Some believe CPI overstates the inflation rate Consumers substitute goods when prices rise New products/technologies have increased the value of money The quality of goods change over time Fed relies on core inflation (excludes food & energy prices)

30. Learning Goals STUDENTS WILL BE ABLE TO… STUDENTS WILL BE ABLE TO… Explain the effects of inflation Explain the effects of inflation Define GDP Define GDP Explain three methods of calculating GDP Explain three methods of calculating GDP

32. Costs of Inflation Erodes value of assets Inefficient use of resources Uncertainty

33. Hyperinflation Country Month with Highest Inflation Rate Highest Monthly Rate Equivalent Daily Inflation Rate Time Required for Prices to Double HungaryJuly 19464.19 x 10 16 %207%15 hours ZimbabweNov 200879,600,000,000%98.0%24.7 hours YugoslaviaJan 1994313,000,000%64.6%1.4 days GermanyOct 192329,500%20.9%3.7 days GreeceOct 194413,800%17.9%4.3 days ChinaMay 19492,178%11.0%6.7 days

34. Hyperinflation