Economics 1022A/B Lecture Notes - Lecture 3: Potential Output, Financial Asset, Shortage

• School: Western University
• Department: Economics
• Course: Economics 1022A/B
• Professor: Emilie Rivers

Document Summary

Oku(cid:374)"s law: if u(cid:374)e(cid:373)ploy(cid:373)e(cid:374)t i(cid:374)(cid:272)reases (cid:271)y (cid:1005)% the(cid:374) gdp will de(cid:272)rease (cid:271)y (cid:1006)- Inflation: an increase in the average price level over time. Cpi: measures the change in the average prices of a fixed basket of about 600 goods and services consumed by average urban households. 7 groups: food, clothing, housing, transportation, personal care, education and recreation, tobacco and alcohol. Inflation rate 2017 = (cpi 2017 cpi 2016)/ cpi 2016. Number of years for price level to double = 70/inflation rate. Types on inflation: demand pull inflation (consumers/buyers): if there is excess demand compared to production capacity, cost push inflation (producers/sellers): if cost of production increases (wages, resources) push up prices. Effects of inflation: real income/purchasing power decreases, fixed income groups suffer more, financial asset owners suffer, physical asset owners gain, unanticipated inflation benefits the borrowers/debtors at the expense of lender/creditor. Actual/normal interest rate (roi) = real roi + anticipated inflation rate.