Percentage Changes

One item we did not get to in our class discussions today was the percentage change.

Percentage changes are a commonly used method of analysis and interpretation. Although we have calculated fractions or shares or percentages of components of GDP spending, the percentage change is different.

Percentage change has us compare a current value with a past value. Or one period with another period.

To calculate the percentage change in GDP in 2006, it is implied that change is relative to the previous period, 2005. The following formula would be used:

(GDP2006 - GDP2005)
-------------------------- x 100 = % change GDP2006
GDP2005

so from the handout in class that would be

(13,194.7 - 12,433.9)
------------------------ x 100 = 6.12%
12,433.9

In general, the formula is

(current value - previous value)
--------------------------------- x 100
previous value


"current" and "previous" may be limiting terms. If we look at the percentage change back in 2003, we'd think of "current" as 2003 and "previous" as 2002.

if we let the variable t stand for current and i stand for some previous period then we can generalize as

(Xt - Xt-i)
---------- x 100
Xt-i

What the falling dollar means to you

The dollar is falling against the euro and the canadian dollar. If you're curious what that means, and as a student of economics you ought to be, you should read this article in Slate.

Answer Key to Practice Test #1 **MY BAD**

I was called out a few times on my answer to problem 1. You are correct, it is NOT D. The answer is C.

I guess I was expecting an alert via email or AIM. Anyway, I apologize for the confusion. I know the same questions showed up on the real test. They are not fully scored but I will make sure that anyone who answered D because this key said D will be properly awarded the point.

But just to be clear: our wants are unlimited, but resources are limited.

Please accept my apologies.

Answer Key to Sample MC Questions for Test 1

Here is the key to the sample test.

1-D, 2-D, 3-A, 4-B, 5-B, 6-B,
7-C, 8-C, 9-B, 10-B,
11-B, 12-A, 13-D, 14-D*, 15-B, 16-B, 17-B,
18-D, 19-A, 20-B, 21-D, 22-B,
23-C, 24-A, 25-C, 26-A or D**, 27-A, 28-B, 29-B, 30-C,
31-B, 32-A, 33-A, 34-B, 35-D,
36-C, 37-D, 38-C, 39-C, 40-C, 41-B, 42-C,
43-A, 44-C, 45-B, 46-B, 47-D.

Some comments:
* When on a PPF, to get more of one good you must give up another. However to get more of one good, in this problem "oil" the output of the other good, helmets, decreases at an increasing rate, not decreasing.

**The circular flow problems on this sample test reflect the model previously used in my course (due to a different book). Although both are acceptable, A may look more like the diagram in the Taylor text.

For you test the wording will be chosen to reflect the material as presented in class and in the Taylor text.

For problems 41, 45, and 47: Both demand and supply shift. When both shift it is important to note that one variable (P or Q) will clearly change in a particular direction, but while one clearly moves the other can move up or down, ultimately uncertain.

41: Demand falls, pushing down P and Q. Supply increases, pushing down P and increasing Q. In sum, P falls but Q can go down or up or stay the same.

45: Supply will fall, pushing P up and Q down. Demand increases, pushing P up and Q up. Price will clearly go up, but the movements in Q can be somewhat offsetting, depending on the magnitude of the shifts of the curves.

47: The costly ad program raises costs of producing milk. Supply decreases. But the ad campaign successfully increases demand. Price will rise due to both, but Q could go up or down or remain the same.

Hint: For these market problems, you should draw S and D curves, shift them appropriately, and see how P and Q ultimately change.

Let me know if you think there are any errors on the key. I threw it together rather quickly. (I certainly use more caution when it is a real test.)

Good luck.

Fed Slashes Interest Rates

We forgot to check this at the end of class...

http://www.federalreserve.gov/newsevents/press/monetary/20070918a.htm

one half percent cut! that's a pretty bold move.

and check out the Dow Jones

(link only relevant for Sept. 18)

Good luck studying.

On trading with people we don't like

The story at this link is rather interesting. It discusses our trade relations with a few countries that we have issues with in the international arena, namely Iran and Venezuela.

One thing to think about when we trade with others: When we trade we most frequently trade with people we don't know. It is very impersonal. Even when we trade with Americans we likely trade with people, if we got to know them, we probably wouldn't like very much (different religion, they smell, they eat grits, or whatever). Yet we trade. We generally regard going to the store as something for our own benefit, not the benefit of the seller.

Some Links of Interest

For national income accounting information (GDP, International Transactions and the Balance of Payments) go to the Bureau of Economic Analysis (BEA).

For price level, inflation (Consumer Price Index--CPI) and Employment and Unemployment data go to the Bureau of Labor Statistics (BLS).

Monetary policy and banking: The Federal Reserve.

Dead Economists

When discussing "comparative advantage" in the context of the Tribes of Roma: Tivoli and Frivoli, I mentioned two economists, names with which you should become a bit familiar.

Here are two wikipedia links for your benefit:

Adam Smith, The Wealth of Nations, 1776

David Ricardo, Principles of Political Economy and Taxation*, 1817

*In class I was not able to instantly recall the name of his work. I noticed on your homework papers many jotted down "he wrote some book". This is the name of his book.

I guess I should make use of the internet in class. We do have this technology!

Regards,

JJ

Homework #2

On the table at the bottom which you are to fill in with opportunity costs, it asks for Roma and Tivoli. But it should really ask for Tivoli and Frivoli. Sorry for the confusion.

JJ