ECON 201 Lecture Notes - Lecture 5: Ceteris Paribus, Statistical Hypothesis Testing, Scatter Plot
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ECON 201 Full Course Notes
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Cpi: the average price level in the economy for cost of living. Nominal price index: calculated using current prices (ex: how much a worker makes per hour) values are translated into real values by dividing the nominal series by the cpi nominal price index. Real increase in earning = 109. 4 - (base year 2003) 100 = 9. 4 % increase. Simple model: changes in mortgage rates cause changes in house prices, ceteris paribus*, and the relationship is inverse. Broader model: house prices = f (mortgage rates, income, supply of housing, population growth, rent, etc. ) Statistical test of simple model: examine house prices and mortgage rate data in conjunction with other variables. * ceteris paribus: means all other variables stay constant. Negative/inverse relationship between house prices and mortgage rates. Regression line: line through the points of a scatter diagram that re ects their pattern. Econometrics: the science of quantifying relationships between economic variables.
