Lifetime Inflation Activity
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The Consumer Price Index and Index Number Purpose W
1 THE CONSUMER PRICE INDEX AND INDEX NUMBER PURPOSE W. Erwin Diewert, Department of Economics, University of British Columbia, Vancouver, B. C., Canada, V6T 1Z1. Email: [email protected] Paper presented at the Fifth Meeting of the International Working Group on Price Indices (The Ottawa Group), Reykjavik, Iceland, August 25-27, 1999; Revised: September, 1999. 1. INTRODUCTION1 “What index numbers are ‘best’? Naturally much depends on the purpose in view.” Irving Fisher (1921; 533). A Consumer Price Index (CPI) is used for a multiplicity of purposes. Some of the more important uses are: · as a compensation index; i.e., as an escalator for payments of various kinds; · as a Cost of Living Index (COLI); i.e., as a measure of the relative cost of achieving the same standard of living (or utility level in the terminology of economics) when a consumer (or group of consumers) faces two different sets of prices; · as a consumption deflator; i.e., it is the price change component of the decomposition of a ratio of consumption expenditures pertaining to two periods into price and quantity change components; · as a measure of general inflation. The CPI’s constructed to serve purposes (ii) and (iii) above are generally based on the economic approach to index number theory. Examples of CPI’s constructed to serve purpose (iv) above are the harmonized indexes produced for the member states of the European Union and the new harmonized index of consumer prices for the euro area, which pertains to the 11 members of the European Union that will use a common currency (called Euroland in the popular press). -
Making Sense of Unemployment Data
PAGE ONE Economics® Making Sense of Unemployment Data Scott A. Wolla, Ph.D., Senior Economic Education Specialist GLOSSARY “Unemployment is like a headache or a high temperature—unpleasant and Cyclical unemployment: Unemployment exhausting but not carrying in itself any explanation of its cause.” associated with recessions in the business —William Henry Beveridge, Causes and Cures of Unemployment cycle. Discouraged worker: Someone who is not working and is not looking for work because of a belief that there are no jobs Job growth has been healthy for five years.1 However, many people still available to him or her. express concern over the health of the overall labor market. For example, Employed: People 16 years and older who Jim Clifton, CEO of Gallup, states that the “official unemployment rate, as have jobs. reported by the U.S. Department of Labor, is extremely misleading.”2 He Frictional unemployment: Unemployment proposes the Gallup Good Jobs rate as a better indicator of the health of the that results when people are new to the labor market. At the heart of Clifton and others’ concern is what the official job market, including recent graduates, or are transitioning from one job to another. unemployment rate actually measures and whether it is a reliable indicator. Labor force: The total number of workers, including both the employed and the The Labor Force: Are You In or Out? unemployed. To measure the unemployment rate, the U.S. Bureau of Labor Statistics Labor force participation rate: The percent- (BLS) surveys 60,000 households—about 110,000 individuals—which age of the working-age population that is in the labor force. -
Ten Tips for Interpreting Economic Data F Jason Furman Chairman, Council of Economic Advisers
Ten Tips for Interpreting Economic Data f Jason Furman Chairman, Council of Economic Advisers July 24, 2015 1. Data is Noisy: Look at Data With Less Volatility and Larger Samples Monthly Employment Growth, 2014-Present Thousands of Jobs 1,000 800 Oct-14: +836/-221 600 400 200 0 -200 Mar-15: Establishment Survey -502/+119 -400 Household Survey (Payroll Concept) -600 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Source: Bureau of Labor Statistics. • Some commentators—and even some economists—tend to focus too closely on individual monthly or weekly data releases. But economic data are notoriously volatile. In many cases, a longer-term average paints a clearer picture, reducing the influence of less informative short-term fluctuations. • The household employment survey samples only 60,000 households, whereas the establishment employment survey samples 588,000 worksites, representing millions of workers. 1 2. Data is Noisy: Look Over Longer Periods Private Sector Payroll Employment, 2008-Present Monthly Job Gain/Loss, Seasonally Adjusted 600,000 400,000 200,000 0 -200,000 12-month -400,000 moving average -600,000 -800,000 -1,000,000 2008 2010 2012 2014 Source: Bureau of Labor Statistics. • Long-term moving averages can smooth out short-term volatility. Over the past year, our businesses have added 240,000 jobs per month on average, more than the 217,000 per month added over the prior 12 months. The evolving moving average provides a less noisy underlying picture of economic developments. 2 2. Data is Noisy: Look Over Longer Periods Weekly Unemployment Insurance Claims, 2012-2015 Thousands 450 400 Weekly Initial Jobless Claims 350 300 Four-Week Moving Average 7/18 250 2012 2013 2014 2015 Source: Bureau of Labor Statistics. -
Macroeconomics Course Outline and Syllabus
City University of New York (CUNY) CUNY Academic Works Open Educational Resources New York City College of Technology 2018 Macroeconomics Course Outline and Syllabus Sean P. MacDonald CUNY New York City College of Technology How does access to this work benefit ou?y Let us know! More information about this work at: https://academicworks.cuny.edu/ny_oers/8 Discover additional works at: https://academicworks.cuny.edu This work is made publicly available by the City University of New York (CUNY). Contact: [email protected] COURSE OUTLINE FOR ECON 1101 – MACROECONOMICS New York City College of Technology Social Science Department COURSE CODE: 1101 TITLE: Macroeconomics Class Hours: 3, Credits: 3 COURSE DESCRIPTION: Fundamental economic ideas and the operation of the economy on a national scale. Production, distribution and consumption of goods and services, the exchange process, the role of government, the national income and its distribution, GDP, consumption function, savings function, investment spending, the multiplier principle and the influence of government spending on income and output. Analysis of monetary policy, including the banking system and the Federal Reserve System. COURSE PREREQUISITE: CUNY proficiency in reading and writing RECOMMENDED TEXTBOOK and MATERIALS* Krugman and Wells, Eds., Macroeconomics 3rd. ed, Worth Publishers, 2012 Leeds, Michael A., von Allmen, Peter and Schiming, Richard C., Macroeconomics, Pearson Education, Inc., 2006 Supplemental Reading (optional, but informative): Krugman, Paul, End This Depression -
Pandemic 101:A Roadmap to Help Students Grasp an Economic Shock
Social Education 85(2) , pp.64–71 ©2021 National Council for the Social Studies Teaching the Economic Effects of the Pandemic Pandemic 101: A Roadmap to Help Students Grasp an Economic Shock Kim Holder and Scott Niederjohn This article focuses on the major national economic indicators and how they changed within the United States real GDP; the over the course of the COVID-19 pandemic. The indicators that we discuss include output from a Ford plant in Canada is not. Gross Domestic Product (GDP), the unemployment rate, interest rates, inflation, and Economists typically measure real GDP other variations of these measures. We will also present data that sheds light on the as a growth rate per quarter: Is GDP get- monetary and fiscal policy responses to the pandemic. Graphs of these statistics are ting bigger or smaller compared to a prior sure to grab teachers’ and students’ attention due to the dramatic shock fueled by the quarter? In fact, a common definition of pandemic. We will explain these economic indicators with additional attention to what a recession is two quarters in a row of they measure and the limitations they may present. Teachers will be introduced to the declining real GDP. Incidentally, it also Federal Reserve Economic Database (FRED), which is a rich source of graphs and measures total U.S. income (and spend- information for teacher instruction and student research. Further classroom-based ing) and that explains why real GDP per resources related to understanding the economic effects of the COVID-19 pandemic capita is a well-established measure used are also presented. -
Burgernomics: a Big Mac Guide to Purchasing Power Parity
Burgernomics: A Big Mac™ Guide to Purchasing Power Parity Michael R. Pakko and Patricia S. Pollard ne of the foundations of international The attractive feature of the Big Mac as an indi- economics is the theory of purchasing cator of PPP is its uniform composition. With few power parity (PPP), which states that price exceptions, the component ingredients of the Big O Mac are the same everywhere around the globe. levels in any two countries should be identical after converting prices into a common currency. As a (See the boxed insert, “Two All Chicken Patties?”) theoretical proposition, PPP has long served as the For that reason, the Big Mac serves as a convenient basis for theories of international price determina- market basket of goods through which the purchas- tion and the conditions under which international ing power of different currencies can be compared. markets adjust to attain long-term equilibrium. As As with broader measures, however, the Big Mac an empirical matter, however, PPP has been a more standard often fails to meet the demanding tests of elusive concept. PPP. In this article, we review the fundamental theory Applications and empirical tests of PPP often of PPP and describe some of the reasons why it refer to a broad “market basket” of goods that is might not be expected to hold as a practical matter. intended to be representative of consumer spending Throughout, we use the Big Mac data as an illustra- patterns. For example, a data set known as the Penn tive example. In the process, we also demonstrate World Tables (PWT) constructs measures of PPP for the value of the Big Mac sandwich as a palatable countries around the world using benchmark sur- measure of PPP. -
Math Calculations to Better Utilize CPI Data
Math calculations to better utilize CPI data Report prepared by Gerald Perrins, branch chief of Consumer Prices in the Mid-Atlantic region, and Diane Nilsen, former regional clearance officer in the National Office of Field Operations, Bureau of Labor Statistics. The Consumer Price Index (CPI) is published points, because index point changes are as an index number that shows the change in affected by the level of the index in relation to the price of a defined market basket of goods its base period, while percent changes are not. and services over time from a base period which is defined as 100.0. An increase of 7 The following illustration shows a percent from that base period, for example, is hypothetical CPI one-month change between shown as 107.0. Alternately, that relationship April 2016 and May 2016 using the 1982- can also be expressed as the price of a base 84=100 reference base. period "market basket" of goods and services rising from $100 to $107. Currently, the Reference Base reference base for most CPI indexes is 1982- 1982-84=100 84=100 but some indexes have other May 2016 ........................................ 240.236 references bases. The reference base years April 2016 ....................................... 239.261 refer to the period in which the index is set to Index point change .............................. 0.975 100.0. In addition, expenditure weights are Divided by the earlier index ..... 0.975/239.261 updated every two years to keep the CPI Equals ............................................... 0.004075 current with changing consumer preferences. Multiplied by 100 ............................... 0.4075 Equals percent change ........................ 0.4 Index numbers are not dollar values, but measures of the change over time relative to Over-the-year percent change their base period value of 100.0 (for example, To arrive at a percent change over an entire 280.0 or 30.3). -
AP Macroeconomics: Vocabulary 1. Aggregate Spending (GDP)
AP Macroeconomics: Vocabulary 1. Aggregate Spending (GDP): The sum of all spending from four sectors of the economy. GDP = C+I+G+Xn 2. Aggregate Income (AI) :The sum of all income earned by suppliers of resources in the economy. AI=GDP 3. Nominal GDP: the value of current production at the current prices 4. Real GDP: the value of current production, but using prices from a fixed point in time 5. Base year: the year that serves as a reference point for constructing a price index and comparing real values over time. 6. Price index: a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year. 7. Market Basket: a collection of goods and services used to represent what is consumed in the economy 8. GDP price deflator: the price index that measures the average price level of the goods and services that make up GDP. 9. Real rate of interest: the percentage increase in purchasing power that a borrower pays a lender. 10. Expected (anticipated) inflation: the inflation expected in a future time period. This expected inflation is added to the real interest rate to compensate for lost purchasing power. 11. Nominal rate of interest: the percentage increase in money that the borrower pays the lender and is equal to the real rate plus the expected inflation. 12. Business cycle: the periodic rise and fall (in four phases) of economic activity 13. Expansion: a period where real GDP is growing. 14. Peak: the top of a business cycle where an expansion has ended. -
Methodology for the National Accounts Main Aggregates Database CONTENTS
Methodology for the National Accounts Main Aggregates Database CONTENTS Page I. INTRODUCTION A. Background ................................................................................................................................................................ 2 B. System of National Accounts ..................................................................................................................................... 2 C. Scope of the database ................................................................................................................................................. 2 D. Collection of data ....................................................................................................................................................... 3 E. Comparability of the national estimates ..................................................................................................................... 3 F. Nomenclature ............................................................................................................................................................. 4 G. Country coverage ....................................................................................................................................................... 5 H. Country groupings ...................................................................................................................................................... 5 I. Revisions ................................................................................................................................................................... -
Using Price Indexes
INFORMATION BRIEF Research Department Minnesota House of Representatives 600 State Office Building St. Paul, MN 55155 Pat Dalton, Legislative Analyst, 651-296-7434 Kathy Novak, Legislative Analyst, 651-296-9253 Updated: November 2009 Using Price Indexes This information brief is a nontechnical guide to the use of price indexes. It explains the difference among the three most commonly used price indexes and suggests when each index should be used. Additionally, this information brief shows how to make some common calculations using price indexes. Contents Price Indexes and Their Uses ...........................................................................................................2 Descriptions of the Major Price Indexes ..........................................................................................2 Gross Domestic Product Chain-Weighted Price Index ..............................................................2 Consumer Price Index (CPI) ......................................................................................................4 Producer Price Index (PPI) ........................................................................................................5 Glossary of Price Index Terms ........................................................................................................7 Common Calculations Using Price Indexes ....................................................................................8 Summary of Major Price Indexes ..................................................................................................10 -
Chapter 1 the Demand for Economic Statistics
Chapter 1 The Demand for Economic Statistics The media publish economic data on a daily basis. But who decides which statistics are useful and which are not? Why is housework not included in the national income, and why are financial data available in real time, while to know the number of people in employment analysts have to wait for weeks? Contrary to popular belief, both the availability and the nature of economic statistics are closely linked to developments in economic theory, the requirements of political decision-makers, and each country’s way of looking at itself. In practice, statistics are based on theoretical and interpretative reference models, and if these change, so does the picture the statistics paint of the economic system. Thus, the data we have today represent the supply and demand sides of statistical information constantly attempting to catch up with each other, with both sides being strongly influenced by the changes taking place in society and political life. This chapter offers a descriptive summary of how the demand for economic statistics has evolved from the end of the Second World War to the present, characterised by the new challenges brought about by globalisation and the rise of the services sector. 1 THE DEMAND FOR ECONOMIC STATISTICS One of the major functions of economic statistics is to develop concepts, definitions, classifications and methods that can be used to produce statistical information that describes the state of and movements in economic phenomena, both in time and space. This information is then used to analyse the behaviour of economic operators, forecast likely movements of the economy as a whole, make economic policy and business decisions, weigh the pros and cons of alternative investments, etc. -
An Integration of Econometric and Behavioral Economic Research
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research Volume Author/Editor: Frank J. Chaloupka, Michael Grossman, Warren K. Bickel and Henry Saffer, editors Volume Publisher: University of Chicago Press Volume ISBN: 0-262-10047-2 Volume URL: http://www.nber.org/books/chal99-1 Conference Date: March 27-28, 1997 Publication Date: January 1999 Chapter Title: The Behavioral Economics of Smoking Chapter Author: Warren K. Bickel, Gregory J. Madden Chapter URL: http://www.nber.org/chapters/c11155 Chapter pages in book: (p. 31 - 74) 2 The Behavioral Economics of Smoking Warren K. Bickel and Gregory J. Madden an adequate science of behavior should supply a satisfactory ac- count of individual behavior which is responsible for the data of economics.... -B. F. Skinner (1953) The above quote addresses a point central to our discussion; namely, the rela- tion between the behavior ofindividuals and groups. Traditionally, the behavior of individuals and groups have been the domain of different professions. Indi- vidual behavior was the domain of psychology, while group behavior, in terms of the allocation of scarce resources, was the domain of economics. However, some psychologists in the late 1970s began to observe similarities between the phenomena that they studied and economic concepts and principles (e.g., Alli- son 1979; Green and Rachlin 1975; Hursh 1980; Lea 1978). This precipitated the development of behavioral economics. In the late 1980s, behavioral eco- nomics began to be consistently applied to the study of drug abuse and depen- dence, and today it is an active area of investigation (e.g., Bickel et al.