ECON-002 Lecture Notes - Lecture 15: Excess Reserves, Memory Stick, Money Supply

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27 Mar 2017
Department
Course
Professor
March 14th, 2017
Snow Day Lecture
Inflation rate: percentage change in price level
Two ways of measuring price indices:
1. Market-based price indices: CPI, PPP
2. NIPA-based price indices: GDP implicit deflator, PCE index
NIPA price indices:
Implicit GDP Deflators
-(Nominal GDP divided by Real GDP) x 100
-if the nominal GDP is bigger than real, it’s because prices are higher in current year than they
were in real change dollars
-deflator is usually>100
-in the base year, the price index is always = 100
in this case, 2009 is the base year
EX: inflation in 2010
[(deflator in 2010-deflator in 2009)/(deflator in 2009)]x100 = 1.21%
When you’re reading the deflator the year after the base year (in this case, base year is 2009), you
know what the inflation rate is even without doing the math
EX: inflation in 2013
[(106.929-105.002)/105.002]x100
EX: if the inflation rate in 2015 was 0.996%, then what was the deflator in 2014?
Rate2015=(nominalGDP/RealGDP)x100
0.00996 = nominalGDP/RealGDP
0.00996 = (109.767-x)/x
0.00996 = (109.767/x)-1
1.00996x=109.767
Deflator2014 = 108.65
Year
Implicit GDP Deflator
2009
100.000
2010
101.211
2011
103.199
2012
105.002
2013
106.929
2014
-
2015
109.767
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