# Capitalism

Materials for class on Wednesday, January 9, 2019

## Contents

## Slides

Download the slides from today’s lecture.

## Pit market results

Here are the supply and demand curves for paper clips. With no taxation, the equilibrium price should be $6; with tax, it is $7, borne equally by buyers and sellers.

And here’s how you did!

## Adjusting for inflation

Converting nominal values (the numbers written down at the time) to real values (the numbers in today’s / another year’s dollars):

\[ \text{Real value} = \frac{\text{Nominal value}}{\text{Price index / 100}} \]

Shifting the price index to a different year:

\[ \text{Price index}_{\text{new year}} = \frac{\text{Price index}_{\text{current year}}}{\text{Price index}_{\text{new year}}} \times 100 \]

Or, for the quickest and easiest method, use the BLS’s CPI inflation calculator.

## Calculating the inflation rate

The inflation rate is the percent change in CPI between two periods. The formula for percent change is:

\[ \text{% change} = \frac{\text{New} - \text{Old}}{\text{Old}} \]

or

\[ \text{% change} = \frac{\text{Current} - \text{Previous}}{\text{Previous}} \]

The CPI in January 2010 was 217.488, and it was 249.245 in January 2018. The total inflation over the past 8 years is \(\frac{249.245 - 217.488}{217.488}\), or 14.6%.

## Economic indicators

- GDP (nominal)
- GDP deflator
- CPI
- Personal income (nominal)
- Population
- Personal income per capita (nominal)
- Health expenditures per capita (nominal)

## Adjust for inflation with Excel

We made this spreadsheet in class to show how to adjust for inflation, change the base year of the CPI, and calculated inflation rates:

We used these raw Excel files to do this:For the morbidly curious, you can see the R code I used to download and compile this data from FRED at the daytime MPA class website.

## Clearest and muddiest things

Go to this form and answer these three questions:

- What was the muddiest thing from class today? What are you still wondering about?
- What was the clearest thing from class today?
- What was the most exciting thing you learned?

I’ll compile the questions and send out answers after class.