ECON 120 1st Edition Lecture 12 Outline of Last Lecture I. Types of Unemployment (Continued)II. Measuring InflationIII. Using Prices Indexes to Adjust for the Effects of InflationIV. Real vs. Nominal Interest RatesOutline of Current Lecture I. National Debt II. Nominal Interest Rate vs. Real Interest RateIII. Does Inflation Impose Costs on the Economy?Current LectureI. National Debt- Total Revenue: 2.902 trillion- Total Expenditures: $3.803 trillion- Deficit: $901 billioni. 5.5% of GDP- How to deal?i. Increase taxesii. Cut spending- One of the agencies with the highest monetary demand is net interesti. Spending 246 million dollars on the debt interest, not actually paying off the principle (debt)- Biggest departments: i. Department of defenseii. Department of health an human servicesII. Real vs. Nominal Interest Rates- Nominal interest rate: the state interest rate on a loan.- Real interest rate:These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. = Nominal Interest Rate – Inflation Rateii. It’s simply corrected for inflation. iii. When real interest rate is above nominal interest rate, deflation must have occurred during that period of time. III. Does Inflation Impose Costs on the Economy?- Inflation affects the distribution of income and wealth. - Even if inflation is anticipated, it still causes problems:1. People and firms have increased real costs of holding cash.2. Firms have menu costs: the cost to firms of changing prices. Frequently changing prices cause are inconvenient for firms (and consumers too!) to deal with.3. Investors are taxed on nominal returns, rather than real returns; so this can increase the tax
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