Introduction to carbohydrates

WEBVTT
Kind: captions
Language: en

00:00:00.210 --> 00:00:01.890
- [Instructor] What we're
going to do in this video

00:00:01.890 --> 00:00:05.440
is give ourselves a quick
introduction to carbohydrates,

00:00:05.440 --> 00:00:07.367
and you might already be
familiar with the notion.

00:00:07.367 --> 00:00:10.910
If you look at some packaged food,

00:00:10.910 --> 00:00:12.208
there's usually a nutritional label

00:00:12.208 --> 00:00:13.730
and will say carbohydrates.

00:00:13.730 --> 00:00:16.030
It will tell you a certain
number of grams per serving.

00:00:16.030 --> 00:00:18.900
And not all carbohydrates are edible,

00:00:18.900 --> 00:00:20.580
but many of the things that we eat

00:00:20.580 --> 00:00:22.580
or many carbohydrates are edible

00:00:22.580 --> 00:00:24.470
and many of the foods we eat

00:00:24.470 --> 00:00:27.360
have some carbohydrate component to it.

00:00:27.360 --> 00:00:29.550
But what is it actually?

00:00:29.550 --> 00:00:32.170
Well, we can look at the
word and we see carbo,

00:00:32.170 --> 00:00:34.030
so maybe it has something
to do with carbons.

00:00:34.030 --> 00:00:35.250
And it says hydrates,

00:00:35.250 --> 00:00:37.470
so maybe it has something
to do with water.

00:00:37.470 --> 00:00:39.960
And if you said that,
you'd be pretty close

00:00:39.960 --> 00:00:42.590
because carbohydrates do involve carbons.

00:00:42.590 --> 00:00:44.710
In fact, this is a very
typical carbohydrate,

00:00:44.710 --> 00:00:46.310
a very simple one right over here.

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This is a glucose molecule.

00:00:48.350 --> 00:00:51.540
And in gray, you see
that it has six carbons.

00:00:51.540 --> 00:00:53.800
And the hydrate part refers to,

00:00:53.800 --> 00:00:58.350
that carbohydrates typically
have oxygen to hydrogens

00:00:58.350 --> 00:01:00.940
in the same ratio as you
would expect in water.

00:01:00.940 --> 00:01:03.380
So, for every one oxygen, two hydrogens,

00:01:03.380 --> 00:01:04.960
and you see that right over here,

00:01:04.960 --> 00:01:06.650
where in glucose, you have one, two,

00:01:06.650 --> 00:01:09.450
three, four, five, six oxygens

00:01:09.450 --> 00:01:11.870
and you have 12 hydrogens,

00:01:11.870 --> 00:01:14.320
and so that's where this word comes from.

00:01:14.320 --> 00:01:16.670
Now, another word that is often used

00:01:16.670 --> 00:01:21.142
interchangeably with carbohydrates
is the term saccharide.

00:01:21.142 --> 00:01:25.780
Saccharide, and saccharide
comes from Greek for sweet,

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and that makes sense because
if you were to taste glucose,

00:01:29.650 --> 00:01:32.290
it would taste sweet to you.

00:01:32.290 --> 00:01:35.920
Now, what's interesting
about something like glucose

00:01:35.920 --> 00:01:38.970
is glucose can be a standalone molecule,

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a very simple sugar in this case

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or you can build up larger molecules

00:01:44.630 --> 00:01:47.230
with really glucose as a building block.

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So for example, right over here,

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we have a part of a glycogen molecule.

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And as you can see,

00:01:53.093 --> 00:01:56.600
it's just a repeating
sequence of glucose molecules.

00:01:56.600 --> 00:01:58.320
And so, something like this,

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we would call glucose a monosaccharide.

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It's one simple sugar right over here.

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Monosaccharide.

00:02:06.810 --> 00:02:09.800
And we would call this
glycogen a polysaccharide.

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Polysaccharide.

00:02:15.340 --> 00:02:16.620
Or another way to think about it

00:02:16.620 --> 00:02:20.560
is glucose is the building
block for the glycogen.

00:02:20.560 --> 00:02:24.070
Another term you might see
is monomer and polymer.

00:02:24.070 --> 00:02:25.330
Those are the general terms

00:02:25.330 --> 00:02:28.250
or if I'm building a large molecule

00:02:28.250 --> 00:02:30.380
out of a chain of smaller ones,

00:02:30.380 --> 00:02:33.370
the building blocks, we
consider to be monomers,

00:02:33.370 --> 00:02:36.220
and then the thing that we
build out of those monomers

00:02:36.220 --> 00:02:38.520
could be our polymer.

00:02:38.520 --> 00:02:41.680
And as we'll see, this
monomer polymer phenomenon

00:02:41.680 --> 00:02:44.830
is not limited to
carbohydrates or saccharides.

00:02:44.830 --> 00:02:47.080
We're gonna see that same
relationship, for example,

00:02:47.080 --> 00:02:50.410
between amino acids and proteins.

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Now, what role do carbohydrates play

00:02:54.010 --> 00:02:57.130
inside of biological systems?

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Well, saccharides or carbohydrates

00:02:59.360 --> 00:03:03.330
are often associated
with the source energy.

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Glucose can be converted

00:03:05.060 --> 00:03:07.970
very quickly to energy
in biological cells.

00:03:07.970 --> 00:03:10.720
Glycogen is also a store of energy

00:03:10.720 --> 00:03:12.320
in your liver and your muscles.

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And once again, it can be broken down

00:03:14.300 --> 00:03:16.216
into the glucose molecules,
which once again,

00:03:16.216 --> 00:03:20.520
is a very readily
available source of energy.

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Now, in plants especially,
some of these polysaccharides

00:03:24.610 --> 00:03:26.530
could also play a structural role

00:03:26.530 --> 00:03:28.220
if we're talking about
things like cellulose,

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which is another polysaccharide.

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So, there's also a structural role.

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Now, I will leave you there.

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We have focused only on one type

00:03:37.420 --> 00:03:39.220
of monosaccharide in glucose,

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and only on one type of
polysaccharide in glycogen.

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As we will see, glucose does show up a lot

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but there are many other
types of monosaccharides

00:03:49.030 --> 00:03:52.340
and there are many other
types of polysaccharides.

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And polysaccharides in particular are part

00:03:54.870 --> 00:03:59.000
of a broader group of molecules
known as macromolecules.

00:04:00.250 --> 00:04:04.030
And as you can imagine,
from the macro prefix,

00:04:04.030 --> 00:04:07.120
it's referring to large molecules,

00:04:07.120 --> 00:04:10.320
oftentimes that have
thousands of atoms in them.

00:04:10.320 --> 00:04:11.440
But don't get the wrong idea.

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They're very large at an atomic level

00:04:13.610 --> 00:04:15.980
but each of these circles are still atoms,

00:04:15.980 --> 00:04:18.160
so you would still need a very, very,

00:04:18.160 --> 00:04:21.190
very, very powerful microscope
to even to take a look

00:04:21.190 --> 00:04:23.990
at even some of the
largest macromolecules,

00:04:24.950 --> 00:04:27.420
including polysaccharides.


Introduction to proteins and amino acids

WEBVTT
Kind: captions
Language: en

00:00:00.250 --> 00:00:01.540
- [Instructor] What we're
going to do in this video

00:00:01.540 --> 00:00:03.770
is talk about proteins,
and some of you all

00:00:03.770 --> 00:00:05.310
might already be familiar with them,

00:00:05.310 --> 00:00:07.080
at least in some context.

00:00:07.080 --> 00:00:10.180
If you look at any type
of packaging on food

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you'll oftentimes see a
label that has protein listed

00:00:14.580 --> 00:00:16.780
and a certain number of grams per serving,

00:00:16.780 --> 00:00:19.410
and some of you who might
be athletically inclined

00:00:19.410 --> 00:00:22.170
might associate it with things
that help you build muscle.

00:00:22.170 --> 00:00:25.020
And none of that is
incorrect, but as we'll see

00:00:25.020 --> 00:00:27.120
in this video and in many future videos,

00:00:27.120 --> 00:00:30.050
proteins are involved
in almost every, single

00:00:30.050 --> 00:00:35.050
biological process and every,
single living organism.

00:00:35.210 --> 00:00:38.040
And if we ask ourselves what are they,

00:00:38.040 --> 00:00:40.040
well, they're biomolecules.

00:00:40.040 --> 00:00:42.370
They're molecules found
in biological systems.

00:00:42.370 --> 00:00:44.040
And they're large biomolecules.

00:00:44.040 --> 00:00:48.660
We could call them macro
molecules, molecules,

00:00:48.660 --> 00:00:50.120
which is just referring to they're made up

00:00:50.120 --> 00:00:53.030
of many, many, many, many, many atoms.

00:00:53.030 --> 00:00:54.560
These right here are pictures,

00:00:54.560 --> 00:00:57.950
two different views, of
the chaperonin protein,

00:00:57.950 --> 00:01:01.330
and this is, the chaperonin
protein is roughly

00:01:01.330 --> 00:01:05.320
800,000 times the mass of a hydrogen atom.

00:01:05.320 --> 00:01:07.880
So it's going to contain tens of thousands

00:01:07.880 --> 00:01:12.860
of atoms which would very
much make it a macro molecule.

00:01:12.860 --> 00:01:14.780
Now one thing to be careful of,

00:01:14.780 --> 00:01:16.720
even though these are very, very large

00:01:16.720 --> 00:01:19.490
on a molecular scale,
even the largest protein

00:01:19.490 --> 00:01:23.730
we know of, titan, is about
one micrometer in length,

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and that's much larger
than this chaperonin here.

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And a micrometer is one
thousandth of a millimeter.

00:01:29.000 --> 00:01:33.240
So even the largest
proteins are microscopic.

00:01:33.240 --> 00:01:35.240
Now another way to think about proteins

00:01:35.240 --> 00:01:37.410
is what they are made up of.

00:01:37.410 --> 00:01:40.270
So some proteins are
made up of a single chain

00:01:40.270 --> 00:01:42.000
of something called amino acids,

00:01:42.000 --> 00:01:43.930
and things like chaperonin are made up

00:01:43.930 --> 00:01:46.750
of multiple chains of amino acids.

00:01:46.750 --> 00:01:49.240
So in a little bit I'll
show you some particular

00:01:49.240 --> 00:01:51.370
amino acids but for now just think of them

00:01:51.370 --> 00:01:53.730
as the building blocks of proteins.

00:01:53.730 --> 00:01:55.440
So let's say that's an amino acid

00:01:55.440 --> 00:01:57.810
and then it will bond
to another amino acid,

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and it's not just one type of amino acid

00:01:59.650 --> 00:02:04.490
and they can form these really,
really, really long chains.

00:02:04.490 --> 00:02:08.860
And so let me be very clear,
this is an amino acid,

00:02:10.130 --> 00:02:12.890
and it's called that because
it contains an amine group,

00:02:12.890 --> 00:02:15.170
which you don't have
to worry about for now,

00:02:15.170 --> 00:02:19.520
and they are the monomers
that form the polymers

00:02:19.520 --> 00:02:22.500
of what's known as polypeptide chains.

00:02:22.500 --> 00:02:24.830
So these are monomers.

00:02:26.560 --> 00:02:30.130
You connect them together,
and you could keep going,

00:02:30.130 --> 00:02:32.430
you could have hundreds or
even thousands of these,

00:02:32.430 --> 00:02:35.510
and so this whole thing right
over here you can consider

00:02:35.510 --> 00:02:40.090
to be a polymer, and a
chain of amino acids,

00:02:40.090 --> 00:02:44.646
the polymer of amino acids
is known as a polypeptide.

00:02:44.646 --> 00:02:46.660
Polypeptide.

00:02:46.660 --> 00:02:51.040
And sometimes a polypeptide
chain is a protein,

00:02:51.040 --> 00:02:53.750
but sometimes a protein
can be made up of multiple

00:02:53.750 --> 00:02:56.680
polypeptide chains put together.

00:02:56.680 --> 00:02:59.710
And what happens is after
these amino acids connect

00:02:59.710 --> 00:03:04.360
or bond to each other, they
bend and they form the shape

00:03:04.360 --> 00:03:05.360
of these proteins.

00:03:05.360 --> 00:03:07.450
So you can imagine the chaperonin protein

00:03:07.450 --> 00:03:10.350
right over here, it has
these chains of amino acids

00:03:10.350 --> 00:03:14.360
that bend, that have a
conformation that form the shape,

00:03:14.360 --> 00:03:17.640
and that's really what
gives proteins their power.

00:03:17.640 --> 00:03:19.660
And as I mentioned, proteins are involved

00:03:19.660 --> 00:03:22.770
in almost every, single
biological function.

00:03:22.770 --> 00:03:27.770
They play a structural, structural role.

00:03:28.260 --> 00:03:30.070
They play a mechanical role.

00:03:30.070 --> 00:03:32.300
When your muscles contract,

00:03:32.300 --> 00:03:34.560
you have actin and myosin proteins

00:03:34.560 --> 00:03:38.320
interacting with each other
so that your muscle contracts.

00:03:38.320 --> 00:03:40.810
They can act as enzymes,
which we will talk about

00:03:40.810 --> 00:03:42.570
in a lot more depth in future videos.

00:03:42.570 --> 00:03:45.120
Enzymes help catalyze reactions.

00:03:45.120 --> 00:03:47.680
They help biological,
biochemical reactions

00:03:47.680 --> 00:03:50.240
happen in biological systems.

00:03:50.240 --> 00:03:53.610
They can be involved
with the immune system.

00:03:53.610 --> 00:03:56.120
They could be involved with signaling.

00:03:56.120 --> 00:03:59.080
They can send signals
from one part of the body

00:03:59.080 --> 00:04:02.470
to another, or they can
be receptors on cells

00:04:02.470 --> 00:04:03.960
that receive signals.

00:04:03.960 --> 00:04:07.930
So proteins are incredibly,
incredibly important.

00:04:07.930 --> 00:04:10.340
Now with that out of the way,
let's dig a little bit deeper

00:04:10.340 --> 00:04:12.850
into the building blocks of proteins,

00:04:12.850 --> 00:04:15.330
the monomers that build up the polymers

00:04:15.330 --> 00:04:17.650
that are polypeptides,
which could be proteins

00:04:17.650 --> 00:04:20.840
or which could be used
to build up proteins.

00:04:22.430 --> 00:04:24.650
So what we see on the
left here is a typical

00:04:24.650 --> 00:04:26.500
structure of an amino acid.

00:04:26.500 --> 00:04:30.050
Notice you see some oxygens,
you see some hydrogen,

00:04:30.050 --> 00:04:32.490
some carbons, and nitrogen.

00:04:32.490 --> 00:04:34.420
And then bonded to this
carbon right over here

00:04:34.420 --> 00:04:35.720
you see this R.

00:04:35.720 --> 00:04:37.130
And you say what element is that.

00:04:37.130 --> 00:04:38.430
Well, this is not an element.

00:04:38.430 --> 00:04:40.810
This is referring, this
is kind of a placeholder

00:04:40.810 --> 00:04:43.220
for a side chain, which differentiates

00:04:43.220 --> 00:04:44.820
the common amino acids.

00:04:44.820 --> 00:04:48.780
And you see some of the common
amino acids in this diagram

00:04:48.780 --> 00:04:49.613
right over here.

00:04:49.613 --> 00:04:51.620
And you can see what the R would be.

00:04:51.620 --> 00:04:53.680
For this arginine right over here,

00:04:53.680 --> 00:04:56.260
that R group would be this part,

00:04:56.260 --> 00:04:59.900
and you don't have to understand
the biochemistry of it

00:04:59.900 --> 00:05:01.950
in too much detail, but you can see

00:05:01.950 --> 00:05:04.880
that they all have this
top part in common,

00:05:04.880 --> 00:05:09.710
but then they all have a
different R group right over here.

00:05:09.710 --> 00:05:13.450
And it's different sequences
of these amino acids

00:05:13.450 --> 00:05:16.830
that give us the diversity
of all of the proteins

00:05:16.830 --> 00:05:19.180
that we have in biological systems

00:05:19.180 --> 00:05:20.570
of all of the various shapes.

00:05:20.570 --> 00:05:23.330
And it really, really,
really, really is amazing.

00:05:23.330 --> 00:05:26.530
I mean, just going back to
this picture of chaperonin

00:05:26.530 --> 00:05:29.490
which is involved with
helping other proteins

00:05:29.490 --> 00:05:34.430
get their shape, it chaperones
the protein folding process,

00:05:34.430 --> 00:05:35.460
so to speak.

00:05:35.460 --> 00:05:36.760
Just think about the complexity.

00:05:36.760 --> 00:05:38.730
This looks like a complex machine,

00:05:38.730 --> 00:05:41.890
but it forms naturally
in biological systems.

00:05:41.890 --> 00:05:44.630
And as we explore more and more biology,

00:05:44.630 --> 00:05:48.070
we keep seeing these fascinating
proteins that look like

00:05:48.070 --> 00:05:52.130
these incredible systems that
really boggle the imagination.


Fiscal policy to address output gaps

WEBVTT
Kind: captions
Language: en

00:00:00.150 --> 00:00:01.070
- [Instructor] What we see here

00:00:01.070 --> 00:00:02.930
is an economy with an output gap.

00:00:02.930 --> 00:00:05.320
As you can see, the short
run equilibrium output

00:00:05.320 --> 00:00:07.820
is below our full employment output.

00:00:07.820 --> 00:00:11.500
This is sometimes referred to
as a recessionary output gap.

00:00:11.500 --> 00:00:13.730
And in other videos, we talk
about how there could be

00:00:13.730 --> 00:00:16.230
a self-adjustment
mechanism in the long run,

00:00:16.230 --> 00:00:18.820
that because we are below full employment,

00:00:18.820 --> 00:00:22.270
folks who maybe, especially
folks who wanna get a job,

00:00:22.270 --> 00:00:24.640
might say, "Hey, I'm willing
to work for less and less."

00:00:24.640 --> 00:00:27.010
And maybe our short run
aggregate supply curve

00:00:27.010 --> 00:00:28.460
shifts down over time

00:00:28.460 --> 00:00:31.560
and we get to a state,
something like this,

00:00:31.560 --> 00:00:33.270
and in that case, so this would be

00:00:33.270 --> 00:00:36.030
our short run aggregate supply curve two,

00:00:36.030 --> 00:00:37.580
and in that case, all of a sudden,

00:00:37.580 --> 00:00:39.217
we would be in a long run equilibrium

00:00:39.217 --> 00:00:41.660
where our equilibrium output

00:00:41.660 --> 00:00:44.530
is equal to our full employment output.

00:00:44.530 --> 00:00:46.650
But let's say that does not happen.

00:00:46.650 --> 00:00:49.300
Let's say we are in a world
where, for some reason,

00:00:49.300 --> 00:00:52.790
we stay sticky with
this negative output gap

00:00:52.790 --> 00:00:54.120
and you are the government

00:00:54.120 --> 00:00:55.820
and you wanna do something about it.

00:00:55.820 --> 00:00:59.060
You wanna get back to
full employment output.

00:00:59.060 --> 00:01:01.130
Well, there's a couple of levers.

00:01:01.130 --> 00:01:03.210
You have fiscal policy,

00:01:03.210 --> 00:01:06.860
fiscal policy, which is all about changing

00:01:06.860 --> 00:01:10.370
how much you spend, so this
would be government spending.

00:01:10.370 --> 00:01:11.340
Let me make it clear.

00:01:11.340 --> 00:01:15.160
This is government spending.

00:01:16.520 --> 00:01:19.440
Or changing the amount of taxation.

00:01:19.440 --> 00:01:22.220
So, the theory is if the
government spends more,

00:01:22.220 --> 00:01:25.220
that would increase total output

00:01:25.220 --> 00:01:27.358
and then the other theory is
if the government taxes less,

00:01:27.358 --> 00:01:28.850
there's more money out in the economy

00:01:28.850 --> 00:01:31.170
and that could also increase total output.

00:01:31.170 --> 00:01:32.860
And there's also monetary policy,

00:01:32.860 --> 00:01:35.040
which we're not gonna go
into detail in this video,

00:01:35.040 --> 00:01:38.520
but monetary policy is
messing with the money supply.

00:01:38.520 --> 00:01:40.200
If maybe there's more money out there,

00:01:40.200 --> 00:01:43.690
lower interest rates, it
might increase output,

00:01:43.690 --> 00:01:46.800
and then the opposite could
be true the other way.

00:01:46.800 --> 00:01:48.680
But we are going to, so
let me just write this.

00:01:48.680 --> 00:01:50.040
This is the money supply.

00:01:50.040 --> 00:01:55.040
Money supply/interest rates.

00:01:55.080 --> 00:01:57.320
Interest rates.

00:01:57.320 --> 00:02:00.220
And this would be the
business of a central bank.

00:02:00.220 --> 00:02:03.970
But we are going to
focus on fiscal policy.

00:02:03.970 --> 00:02:07.300
So as a government, what
we want to see happen

00:02:07.300 --> 00:02:10.640
is this aggregate demand
curve shift to the right,

00:02:10.640 --> 00:02:13.900
so we want it to get to a place like this.

00:02:13.900 --> 00:02:16.820
We want our aggregate demand curve

00:02:16.820 --> 00:02:20.010
to shift to the right just like this,

00:02:20.010 --> 00:02:23.220
so this would be aggregate demand two.

00:02:23.220 --> 00:02:25.050
And how do we do that?

00:02:25.050 --> 00:02:28.240
How do we get this shift right over here

00:02:28.240 --> 00:02:31.250
so that we get to our
full employment output?

00:02:31.250 --> 00:02:34.240
Well, there's two levers
that we can think about.

00:02:34.240 --> 00:02:36.530
As we just said, government
spending and taxation.

00:02:36.530 --> 00:02:39.460
Now, a big misconception
is a lot of folks say,

00:02:39.460 --> 00:02:42.840
"Well, if I increase spending
by a hundred billion dollars,

00:02:42.840 --> 00:02:45.530
"that's equivalent of reducing taxes

00:02:45.530 --> 00:02:46.640
"by a hundred billion dollars

00:02:46.640 --> 00:02:49.210
"because there would be a
hundred billion more dollars

00:02:49.210 --> 00:02:52.750
"out there in the economy
to increase output."

00:02:52.750 --> 00:02:54.270
But you have to be very careful.

00:02:54.270 --> 00:02:55.900
Remember what we learned
about multipliers,

00:02:55.900 --> 00:02:58.030
and remember, these are
all very simple models,

00:02:58.030 --> 00:03:00.400
but a regular multiplier,
let me write it over here,

00:03:00.400 --> 00:03:03.600
a regular multiplier,

00:03:03.600 --> 00:03:05.420
a regular multiplier is one

00:03:05.420 --> 00:03:09.130
over one minus the marginal
propensity to consume,

00:03:09.130 --> 00:03:11.380
while our tax multiplier,

00:03:11.380 --> 00:03:14.340
tax multiplier

00:03:15.630 --> 00:03:18.820
is equal to, so if you
have an increase in taxes,

00:03:18.820 --> 00:03:20.420
that would be the negative

00:03:20.420 --> 00:03:22.300
of the marginal propensity to consume

00:03:22.300 --> 00:03:25.100
over one minus the marginal
propensity to consume.

00:03:25.100 --> 00:03:27.570
The negative would be
if you increase taxes

00:03:27.570 --> 00:03:31.280
that is going to have a negative
total effect on spending.

00:03:31.280 --> 00:03:32.113
And the reason why you have

00:03:32.113 --> 00:03:34.170
this marginal propensity
to consume in the numerator

00:03:34.170 --> 00:03:36.360
is if I were to have my taxes reduced

00:03:36.360 --> 00:03:37.870
by, say, a hundred dollars,

00:03:37.870 --> 00:03:39.750
depending on my marginal
propensity to consume,

00:03:39.750 --> 00:03:41.130
if my marginal propensity to consume

00:03:41.130 --> 00:03:43.350
is less than one, which it typically is,

00:03:43.350 --> 00:03:45.390
I'm not gonna spend all
that hundred dollars.

00:03:45.390 --> 00:03:47.640
I am going to spend some fraction of it,

00:03:47.640 --> 00:03:49.280
really the marginal propensity to consume

00:03:49.280 --> 00:03:50.720
times a hundred dollars.

00:03:50.720 --> 00:03:52.970
While if the government
just goes out there

00:03:52.970 --> 00:03:54.058
and spends a hundred dollars,

00:03:54.058 --> 00:03:56.220
well, that hundred dollars got spent.

00:03:56.220 --> 00:03:58.583
And to see the impact,
the difference in impact,

00:03:58.583 --> 00:04:01.150
let's go through it a little
bit, let's do an example.

00:04:01.150 --> 00:04:04.050
Let's say a situation
where the government,

00:04:04.050 --> 00:04:07.920
the government just spends $100 billion.

00:04:08.820 --> 00:04:10.930
So, the government wants
to spend $100 billion.

00:04:10.930 --> 00:04:12.667
What is going to be the impact?

00:04:12.667 --> 00:04:14.090
And let's say we're in a world

00:04:14.090 --> 00:04:17.530
where our marginal propensity
to consume is equal to 0.8.

00:04:18.770 --> 00:04:20.150
What is going to be the effect

00:04:20.150 --> 00:04:23.140
on the economy in this
situation right over here?

00:04:23.140 --> 00:04:25.108
Well, in this situation,
you're going to have

00:04:25.108 --> 00:04:27.810
a hundred billion dollars of spending

00:04:27.810 --> 00:04:29.900
times, you're gonna multiply
it times the multiplier,

00:04:29.900 --> 00:04:34.220
one over one minus our marginal
propensity to consume, 0.8,

00:04:35.490 --> 00:04:39.480
and so this is going to
be equal to $100 billion,

00:04:40.440 --> 00:04:42.870
$100 billion

00:04:42.870 --> 00:04:45.790
divided by 0.2.

00:04:45.790 --> 00:04:49.320
Well, 0.2 is 1/5, so this is
going to be the same thing

00:04:49.320 --> 00:04:52.020
as dividing by 1/5 or multiplying by five,

00:04:52.020 --> 00:04:53.758
so you're going to have
an increase in output

00:04:53.758 --> 00:04:58.440
based on this very simple
model of $500 billion.

00:04:59.290 --> 00:05:02.500
So, our multiplier here was five.

00:05:02.500 --> 00:05:03.730
But let's say we go the other way,

00:05:03.730 --> 00:05:05.930
let's say instead, the government decides

00:05:05.930 --> 00:05:08.960
to decrease taxes by a
hundred billion dollars.

00:05:08.960 --> 00:05:13.140
So, decrease taxes

00:05:14.260 --> 00:05:17.133
by $100 billion, and we're gonna assume

00:05:17.133 --> 00:05:20.090
the exact same marginal
propensity to consume.

00:05:20.090 --> 00:05:23.340
Well, in that situation,
what's our tax multiplier?

00:05:23.340 --> 00:05:24.830
And we're decreasing taxes,

00:05:24.830 --> 00:05:26.392
so that will offset this negative.

00:05:26.392 --> 00:05:28.840
So, the increase in the economy

00:05:28.840 --> 00:05:30.730
is going to be our hundred billion dollars

00:05:30.730 --> 00:05:33.890
times our marginal
propensity to consume, 0.8,

00:05:33.890 --> 00:05:37.170
divided by one minus the
marginal propensity to consume.

00:05:37.170 --> 00:05:39.400
Well, this part right over here

00:05:39.400 --> 00:05:42.180
was exactly the same as
what we had over there,

00:05:42.180 --> 00:05:46.680
so that's going to be
equal to $500 billion,

00:05:46.680 --> 00:05:50.770
this part, times 0.8.

00:05:50.770 --> 00:05:53.800
And so, what is that going to be?

00:05:53.800 --> 00:05:58.460
Well, that is going to
be equal to $400 billion.

00:06:00.230 --> 00:06:03.200
And once again, intuitively,
where did this come from?

00:06:03.200 --> 00:06:06.000
Well, if the government spends
that hundred billion dollars,

00:06:06.000 --> 00:06:08.010
that hundred billion dollars gets spent

00:06:08.010 --> 00:06:10.110
and then you have the marginal
propensity to consume,

00:06:10.110 --> 00:06:11.580
the person or the people who get it

00:06:11.580 --> 00:06:13.370
will then spend 80 billion of that,

00:06:13.370 --> 00:06:14.320
and then the people who'd get that

00:06:14.320 --> 00:06:16.260
would spend 64 billion, on and on and on,

00:06:16.260 --> 00:06:18.580
so it eventually ends
up being $500 billion.

00:06:18.580 --> 00:06:21.100
But with the decrease in
taxes of a hundred billion,

00:06:21.100 --> 00:06:23.408
that first hundred billion
doesn't necessarily get spent.

00:06:23.408 --> 00:06:27.170
If I get my taxes reduced,
let's say they're all on me,

00:06:27.170 --> 00:06:29.470
by a hundred billion,
I might save some of it

00:06:29.470 --> 00:06:31.280
based on this marginal
propensity to consume.

00:06:31.280 --> 00:06:33.290
I might save 20 billion of it

00:06:33.290 --> 00:06:34.890
and spend the other 80 billion,

00:06:34.890 --> 00:06:37.790
and so that's why based
on this simplified model,

00:06:37.790 --> 00:06:41.826
you might have a lower total
impact right over here.

00:06:41.826 --> 00:06:43.991
So, that's a very important takeaway.

00:06:43.991 --> 00:06:47.700
Fiscal policy, government
spending or taxation,

00:06:47.700 --> 00:06:49.210
but based on these models,

00:06:49.210 --> 00:06:51.120
you would use a different multiplier,

00:06:51.120 --> 00:06:54.790
and so they are not going to
be necessarily equivalent.


Calculating change in spending or taxes to close output gaps

WEBVTT
Kind: captions
Language: en

00:00:00.160 --> 00:00:01.730
- [Instructor] So we have two different

00:00:01.730 --> 00:00:03.870
economies depicted here.

00:00:03.870 --> 00:00:06.470
On the left, we have an economy

00:00:06.470 --> 00:00:08.460
where its short run equilibrium output

00:00:08.460 --> 00:00:11.340
is above its full employment output.

00:00:11.340 --> 00:00:14.810
And so it has a positive output cap.

00:00:14.810 --> 00:00:17.030
And it might seem like a good thing

00:00:17.030 --> 00:00:19.530
that your economy's just
doing really, really well,

00:00:19.530 --> 00:00:21.860
even more than what is
actually sustainable,

00:00:21.860 --> 00:00:23.790
but there could be
negatives here, as well.

00:00:23.790 --> 00:00:27.040
You might be depleting resources
in an unsustainable way.

00:00:27.040 --> 00:00:30.400
You might start having
uncomfortable levels of inflation.

00:00:30.400 --> 00:00:34.460
And so in these situations,
if you don't have your

00:00:34.460 --> 00:00:37.360
self-correcting mechanisms
happen to get us back

00:00:37.360 --> 00:00:40.440
to our full employment output,

00:00:40.440 --> 00:00:44.010
a government might want
to do contractionary,

00:00:44.010 --> 00:00:47.930
contractionary fiscal policy.

00:00:49.100 --> 00:00:50.720
And it also might be because

00:00:50.720 --> 00:00:53.320
the contractionary
fiscal policy could undo

00:00:53.320 --> 00:00:56.570
some expansionary fiscal policy
that was done in the past.

00:00:56.570 --> 00:00:58.220
And we'll talk more about that.

00:00:58.220 --> 00:01:01.840
But what are examples of
contractionary fiscal policy?

00:01:01.840 --> 00:01:03.700
Well, contractionary fiscal policy,

00:01:03.700 --> 00:01:05.810
you could raise taxes.

00:01:08.350 --> 00:01:11.010
That would decrease aggregate demand.

00:01:11.010 --> 00:01:16.010
Or, you could decrease spending.

00:01:17.870 --> 00:01:20.960
And if you think about what
it would do to these curves,

00:01:20.960 --> 00:01:24.120
it would shift our aggregate
demand curve to the left.

00:01:24.120 --> 00:01:27.850
The goal would be to get back
to our long run equilibrium.

00:01:27.850 --> 00:01:28.900
So you would want to get to

00:01:28.900 --> 00:01:31.070
this aggregate demand curve two

00:01:31.070 --> 00:01:34.890
through your contractionary fiscal policy.

00:01:34.890 --> 00:01:35.990
Now if you look at the right,

00:01:35.990 --> 00:01:38.040
we have the opposite scenario.

00:01:38.040 --> 00:01:41.150
Here, we have a negative output gap,

00:01:41.150 --> 00:01:44.210
sometimes known as a
recessionary output gap.

00:01:44.210 --> 00:01:46.130
And governments tend to get more worked up

00:01:46.130 --> 00:01:47.860
about the recessionary output gap

00:01:47.860 --> 00:01:49.520
because now people are out of work.

00:01:49.520 --> 00:01:50.920
Things are not good.

00:01:50.920 --> 00:01:53.384
And so what would a
government want to do if the

00:01:53.384 --> 00:01:57.700
self-correction mechanisms
aren't happening?

00:01:57.700 --> 00:02:00.350
Well, they might wanna do
expansionary fiscal policy.

00:02:08.280 --> 00:02:11.650
And so they would wanna shift
this aggregate demand curve

00:02:11.650 --> 00:02:14.650
to the right so that it looks
something more like this.

00:02:14.650 --> 00:02:18.700
So we'd get back to our full
employment level of output.

00:02:18.700 --> 00:02:21.260
So that would aggregate demand two.

00:02:21.260 --> 00:02:25.460
And what are examples of
expansionary fiscal policy?

00:02:25.460 --> 00:02:26.830
Well, it's gonna be the opposite.

00:02:26.830 --> 00:02:29.290
You could lower taxes

00:02:33.550 --> 00:02:37.760
or you could increase spending.

00:02:38.780 --> 00:02:42.130
So let's focus on this, the
expansionary monetary policies

00:02:42.130 --> 00:02:44.920
and actually dig a little
bit deeper into the numbers.

00:02:44.920 --> 00:02:46.780
Let's say we have an economy

00:02:46.780 --> 00:02:51.780
where our marginal propensity
to consume is 0.75.

00:02:53.550 --> 00:02:55.060
And let's say that we have

00:02:55.060 --> 00:02:57.350
a negative output gap right over here

00:02:57.350 --> 00:02:58.860
of a hundred billion dollars.

00:02:58.860 --> 00:03:02.350
So we have one hundred
billion dollar negative,

00:03:02.350 --> 00:03:06.290
or recessionary, negative output gap.

00:03:09.010 --> 00:03:13.960
Let's first think about the
increasing spending lever.

00:03:13.960 --> 00:03:16.770
How much would we have
to increase spending,

00:03:16.770 --> 00:03:18.780
given this marginal propensity to consume,

00:03:18.780 --> 00:03:23.110
to close a one hundred billion
dollar negative output gap.

00:03:23.110 --> 00:03:25.060
Pause this video and try to solve that.

00:03:26.030 --> 00:03:27.970
Well, let's just think
about our multiplier.

00:03:27.970 --> 00:03:31.440
Our multiplier is going to be equal to

00:03:34.210 --> 00:03:36.860
one over one minus the MPC.

00:03:36.860 --> 00:03:39.960
So that's one over one minus 0.75.

00:03:39.960 --> 00:03:41.680
Well that's one over 0.25,

00:03:41.680 --> 00:03:44.400
which is going to be equal to four.

00:03:44.400 --> 00:03:46.144
And so if you want to close

00:03:46.144 --> 00:03:50.670
a hundred billion dollar spending
gap, or sorry, output gap,

00:03:50.670 --> 00:03:53.680
so that's your output gap you wanna close.

00:03:53.680 --> 00:03:58.080
That's going to be equal
to your spending increase.

00:03:58.080 --> 00:04:02.550
So spending increase
times your multiplier.

00:04:06.440 --> 00:04:09.060
So in this case, it is times four.

00:04:09.060 --> 00:04:11.390
So if you divide both sides by four,

00:04:11.390 --> 00:04:16.390
you get your spending increase
is going to need to be

00:04:18.620 --> 00:04:19.680
hundred billion divided by four

00:04:19.680 --> 00:04:23.330
is going to be 25 billion dollars.

00:04:23.330 --> 00:04:24.163
Makes sense.

00:04:24.163 --> 00:04:27.110
If you spend, if the government
spends 25 billion dollars,

00:04:27.110 --> 00:04:29.440
because of the marginal
propensity to consume,

00:04:29.440 --> 00:04:30.840
you have a multiplier four,

00:04:30.840 --> 00:04:34.840
so you have a hundred
billion dollars of more

00:04:34.840 --> 00:04:38.600
of total spending that is
going to happen in the economy

00:04:38.600 --> 00:04:40.640
because of that initial
government spending

00:04:40.640 --> 00:04:43.390
of 25 billion dollars.

00:04:43.390 --> 00:04:46.180
But what if, instead, the
government wanted to do it

00:04:46.180 --> 00:04:47.880
by lowering taxes?

00:04:47.880 --> 00:04:48.840
What would be the amount

00:04:48.840 --> 00:04:50.090
that they would need to lower taxes?

00:04:50.090 --> 00:04:52.060
Once again, based on this
very simplified model,

00:04:52.060 --> 00:04:54.040
in order to close this output gap.

00:04:55.010 --> 00:04:58.500
Well here, we wanna think
about the tax multiplier.

00:04:58.500 --> 00:05:01.690
Our tax multiplier is equal

00:05:04.520 --> 00:05:09.520
to our marginal propensity to
consume times our multiplier.

00:05:14.310 --> 00:05:17.020
So in this case, it's
actually the negative of that

00:05:17.020 --> 00:05:19.960
because if you increase taxes,

00:05:19.960 --> 00:05:23.920
then that is going to decrease
spending and vice versa.

00:05:23.920 --> 00:05:25.140
And so this is going to be equal

00:05:25.140 --> 00:05:29.730
to negative 0.75 times four,

00:05:29.730 --> 00:05:31.910
which is equal to negative three.

00:05:31.910 --> 00:05:33.970
And so one way to think about it is

00:05:33.970 --> 00:05:38.350
if we wanna close a hundred
billion dollar output gap,

00:05:38.350 --> 00:05:42.190
that is going to be equal to delta t,

00:05:42.190 --> 00:05:46.330
how much we increase taxes,
times negative three.

00:05:46.330 --> 00:05:48.130
If we wanna solve for delta t,

00:05:50.000 --> 00:05:51.830
we divide both sides by negative three.

00:05:51.830 --> 00:05:55.330
And we get delta t, so let's
put a little arrow here.

00:05:55.330 --> 00:05:59.550
Delta t is equal to 100 billion dollars

00:06:00.650 --> 00:06:02.720
divided by negative three,

00:06:02.720 --> 00:06:07.720
which is approximately equal
to -33 billion dollars.

00:06:08.490 --> 00:06:10.120
Once again, why is this negative?

00:06:10.120 --> 00:06:12.630
Well, this is your increase in taxes.

00:06:12.630 --> 00:06:13.510
So if that's negative,

00:06:13.510 --> 00:06:17.290
that means you lowered
taxes by 33 billion dollars.

00:06:17.290 --> 00:06:22.290
So lower taxes by 33 billion dollars.

00:06:25.910 --> 00:06:27.540
Now there's a couple of
interesting things here,

00:06:27.540 --> 00:06:29.320
other than just the
mechanics and the numbers.

00:06:29.320 --> 00:06:34.320
Notice that this number and
this number are not the same.

00:06:34.470 --> 00:06:35.920
And that's a common misconception

00:06:35.920 --> 00:06:37.220
that they would be the same,

00:06:37.220 --> 00:06:38.720
that they would be equivalent

00:06:38.720 --> 00:06:40.540
if you're trying to close the same gap.

00:06:40.540 --> 00:06:42.070
Notice they aren't.

00:06:42.070 --> 00:06:44.690
In general, if we assume
everything we just assumed,

00:06:44.690 --> 00:06:48.010
if you're trying to close
the same output gap,

00:06:48.010 --> 00:06:51.120
you would have to change
your taxes by more

00:06:51.120 --> 00:06:54.410
than you would have to change
your government spending.


How to calculate interquartile range IQR

WEBVTT
Kind: captions
Language: en

00:00:00.345 --> 00:00:01.434
- [Instructor] Let's get some practice

00:00:01.434 --> 00:00:03.566
calculating interquartile ranges

00:00:03.566 --> 00:00:05.285
and I've taken some exercises

00:00:05.285 --> 00:00:07.065
from the Khan Academy exercises here.

00:00:07.065 --> 00:00:09.047
I'm just gonna solve it on my scratch pad.

00:00:09.047 --> 00:00:10.357
The following data points represent

00:00:10.357 --> 00:00:13.831
the number of animal crackers
in each kid's lunch box.

00:00:13.831 --> 00:00:16.483
Sort the data from least to greatest

00:00:16.483 --> 00:00:19.550
and then find the interquartile
range of the data set

00:00:19.550 --> 00:00:22.860
and I encourage you to do this
before I take a shot at it.

00:00:22.860 --> 00:00:24.247
Alright, so let's first sort it

00:00:24.247 --> 00:00:25.269
and if we were actually doing this

00:00:25.269 --> 00:00:28.130
on the Khan Academy exercise,
you could just drag these,

00:00:28.130 --> 00:00:29.970
you could just click and
drag these numbers around

00:00:29.970 --> 00:00:32.172
to sort 'em but I'll just do it by hand.

00:00:32.172 --> 00:00:35.480
So let's see, the lowest number
here looks like it's a four.

00:00:35.480 --> 00:00:38.709
So I have that four
then I have another four

00:00:38.709 --> 00:00:40.712
and then I have another
four and let's see,

00:00:40.712 --> 00:00:41.734
are there any fives?

00:00:41.734 --> 00:00:43.939
No fives but there is a six.

00:00:43.939 --> 00:00:47.939
So then there is a six
and then there's a seven.

00:00:48.840 --> 00:00:51.212
There doesn't seem to
be an eight or a nine

00:00:51.212 --> 00:00:53.129
but then we get to a 10

00:00:54.107 --> 00:00:56.274
and then we get to 11, 12.

00:00:59.959 --> 00:01:04.126
No 13 but then we got 14 and
then finally we have a 15.

00:01:06.077 --> 00:01:07.262
So the first thing we wanna do

00:01:07.262 --> 00:01:09.425
is figure out the median here.

00:01:09.425 --> 00:01:10.732
So the median's the middle number.

00:01:10.732 --> 00:01:13.194
I have one, two, three, four, five,

00:01:13.194 --> 00:01:15.564
six, seven, eight, nine numbers

00:01:15.564 --> 00:01:17.726
so there's going to be
just one middle number.

00:01:17.726 --> 00:01:19.440
I have an odd number of numbers here

00:01:19.440 --> 00:01:20.273
and it's going to be the number

00:01:20.273 --> 00:01:21.902
that has four to the left
and four to the right

00:01:21.902 --> 00:01:25.655
and that middle number, the
median is going to be 10.

00:01:25.655 --> 00:01:29.080
Notice I have four to the
left and four to the right

00:01:29.080 --> 00:01:30.616
and the interquartile range

00:01:30.616 --> 00:01:32.249
is all about figuring out the difference

00:01:32.249 --> 00:01:34.050
between the middle of the first half

00:01:34.050 --> 00:01:35.932
and the middle of the second half.

00:01:35.932 --> 00:01:37.121
It's a measure of spread,

00:01:37.121 --> 00:01:39.692
how far apart all of these data points are

00:01:39.692 --> 00:01:41.780
and so let's figure out the
middle of the first half.

00:01:41.780 --> 00:01:43.006
So we're gonna ignore the median here

00:01:43.006 --> 00:01:45.863
and just look at these first four numbers

00:01:45.863 --> 00:01:47.750
and so out of these first four numbers,

00:01:47.750 --> 00:01:50.886
since I have an even number of numbers,

00:01:50.886 --> 00:01:53.772
I'm gonna calculate the median
using the middle two numbers

00:01:53.772 --> 00:01:55.446
so I'm gonna look at the
middle two numbers here

00:01:55.446 --> 00:01:56.672
and I'm gonna take their average.

00:01:56.672 --> 00:01:58.272
So the average of four and six,

00:01:58.272 --> 00:02:00.311
halfway between four and six is five

00:02:00.311 --> 00:02:02.717
or you could say four plus six is,

00:02:02.717 --> 00:02:04.803
four plus six is equal to 10

00:02:04.803 --> 00:02:06.811
but then I wanna divide that by two

00:02:06.811 --> 00:02:08.974
so this is going to be equal to five.

00:02:08.974 --> 00:02:11.864
So the middle of the first half is five.

00:02:11.864 --> 00:02:14.036
You can imagine it right over there

00:02:14.036 --> 00:02:15.262
and then the middle of the second half

00:02:15.262 --> 00:02:16.448
I'm gonna have to do the same thing.

00:02:16.448 --> 00:02:17.508
I have four numbers.

00:02:17.508 --> 00:02:19.849
I'm gonna look at the middle two numbers.

00:02:19.849 --> 00:02:22.424
The middle two numbers are 12 and 14.

00:02:22.424 --> 00:02:25.777
The average of 12 and
14 is going to be 13,

00:02:25.777 --> 00:02:27.093
is going to be 13.

00:02:27.093 --> 00:02:30.321
If you took 12 plus 14 over two,

00:02:30.321 --> 00:02:33.959
that's going to be 26 over
two which is equal to 13

00:02:33.959 --> 00:02:35.403
but an easier way for numbers like this,

00:02:35.403 --> 00:02:39.904
you say hey, 13 is right exactly
halfway between 12 and 14.

00:02:39.904 --> 00:02:40.737
So there you have it.

00:02:40.737 --> 00:02:42.905
I have the middle of
the first half is five.

00:02:42.905 --> 00:02:45.110
I have the middle of the second half, 13.

00:02:45.110 --> 00:02:46.743
To calculate the interquartile range,

00:02:46.743 --> 00:02:49.254
I just have to find the difference
between these two things.

00:02:49.254 --> 00:02:53.783
So the interquartile range
for this first example

00:02:53.783 --> 00:02:56.200
is going to be 13 minus five.

00:02:57.710 --> 00:02:58.815
The middle of the second half

00:02:58.815 --> 00:03:00.911
minus the middle of the first half

00:03:00.911 --> 00:03:03.974
which is going to be equal to eight.

00:03:03.974 --> 00:03:05.160
Let's do some more of these.

00:03:05.160 --> 00:03:07.324
This is strangely fun.

00:03:07.324 --> 00:03:09.213
Find the interquartile range

00:03:09.213 --> 00:03:11.058
of the data in the dot plot below.

00:03:11.058 --> 00:03:14.413
Songs on each album in Shane's collection

00:03:14.413 --> 00:03:16.337
and so let's see what's going on here

00:03:16.337 --> 00:03:20.015
and like always, I encourage
you to take a shot at it.

00:03:20.015 --> 00:03:22.385
So this is just representing
the data in a different way

00:03:22.385 --> 00:03:24.712
but we could write this
again as an ordered list

00:03:24.712 --> 00:03:25.730
so let's do that.

00:03:25.730 --> 00:03:29.897
We have one song or we have
one album with seven songs

00:03:31.786 --> 00:03:32.931
I guess you could say.

00:03:32.931 --> 00:03:34.467
So we have a seven.

00:03:34.467 --> 00:03:38.634
We have two albums with nine
songs so we have two nines.

00:03:40.335 --> 00:03:43.854
Let me write those, we have two nines

00:03:43.854 --> 00:03:45.860
then we have three 10s.

00:03:45.860 --> 00:03:47.043
Cross those out.

00:03:47.043 --> 00:03:49.793
So 10, 10, 10 then we have an 11.

00:03:52.276 --> 00:03:53.587
We have an 11.

00:03:53.587 --> 00:03:55.587
We have two 12s, two 12s

00:03:56.827 --> 00:03:59.568
and then finally, we
have, I used those already

00:03:59.568 --> 00:04:02.225
and then we have an album with 14 songs.

00:04:02.225 --> 00:04:03.167
14.

00:04:03.167 --> 00:04:06.912
So all I did here is I
wrote this data like this

00:04:06.912 --> 00:04:08.773
so we could see, okay,
this album has seven songs,

00:04:08.773 --> 00:04:11.302
this album has nine, this album has nine

00:04:11.302 --> 00:04:13.694
and the way I wrote it,
it's already in order

00:04:13.694 --> 00:04:15.475
so I could immediately get,

00:04:15.475 --> 00:04:18.169
I can immediately start
calculating the median.

00:04:18.169 --> 00:04:20.128
Let's see, I have one, two, three, four,

00:04:20.128 --> 00:04:23.157
five, six, seven, eight, nine, 10 numbers.

00:04:23.157 --> 00:04:25.901
I have an even number of numbers
so to calculate the median,

00:04:25.901 --> 00:04:28.031
I'm gonna have to look at
the middle two numbers.

00:04:28.031 --> 00:04:32.608
So the middle two numbers look
like it's these two 10s here

00:04:32.608 --> 00:04:34.445
because I have four to the left of them

00:04:34.445 --> 00:04:36.287
and then four to the right of them

00:04:36.287 --> 00:04:39.108
and so since I'm calculating
the median using two numbers,

00:04:39.108 --> 00:04:40.575
it's going to be halfway between them.

00:04:40.575 --> 00:04:43.110
It's going to be the average
of these two numbers.

00:04:43.110 --> 00:04:45.603
Well, the average of 10 and
10 is just going to be 10.

00:04:45.603 --> 00:04:48.270
So the median is going to be 10.

00:04:49.168 --> 00:04:51.168
Median is going to be 10

00:04:52.684 --> 00:04:55.100
and in a case like this
where I calculated the median

00:04:55.100 --> 00:04:56.526
using the middle two numbers,

00:04:56.526 --> 00:04:59.962
I can now include this
left 10 in the first half

00:04:59.962 --> 00:05:02.912
and I can include this
right 10 in the second half.

00:05:02.912 --> 00:05:04.097
So let's do that.

00:05:04.097 --> 00:05:08.629
So the first half is going
to be those five numbers

00:05:08.629 --> 00:05:11.204
and then the second half is
going to be these five numbers

00:05:11.204 --> 00:05:13.273
and it makes sense 'cause
I'm literally just looking at

00:05:13.273 --> 00:05:14.814
first half it's gonna be five numbers,

00:05:14.814 --> 00:05:16.741
second half is gonna be five numbers.

00:05:16.741 --> 00:05:19.354
If I had a true middle number
like the previous example

00:05:19.354 --> 00:05:20.828
then we ignore that when we look

00:05:20.828 --> 00:05:22.013
at the first and second half

00:05:22.013 --> 00:05:24.257
or at least that's the
way that we're doing it

00:05:24.257 --> 00:05:28.107
in these examples but what's
the median of this first half

00:05:28.107 --> 00:05:29.785
if we look at these five numbers?

00:05:29.785 --> 00:05:31.217
Well, if you have five numbers,

00:05:31.217 --> 00:05:32.479
if you have an odd number of numbers,

00:05:32.479 --> 00:05:33.999
you're gonna have one middle number

00:05:33.999 --> 00:05:37.712
and it's going to be the one
that has two on either sides.

00:05:37.712 --> 00:05:40.859
This has two to the left
and it has two to the right.

00:05:40.859 --> 00:05:42.991
So the median of the first half,

00:05:42.991 --> 00:05:46.501
the middle of the first
half is nine right over here

00:05:46.501 --> 00:05:47.773
and the middle of the second half,

00:05:47.773 --> 00:05:50.129
I have one, two, three, four, five numbers

00:05:50.129 --> 00:05:51.558
and this 12 is right in the middle.

00:05:51.558 --> 00:05:54.049
You have two to the left
and two to the right

00:05:54.049 --> 00:05:56.215
so the median of the second half is 12.

00:05:56.215 --> 00:06:00.004
Interquartile range is
just going to be the median

00:06:00.004 --> 00:06:01.896
of the second half, 12

00:06:01.896 --> 00:06:05.857
minus the median of the first half, nine

00:06:05.857 --> 00:06:07.248
which is going to be equal to three.

00:06:07.248 --> 00:06:09.168
So if I was doing this
on the actual exercise,

00:06:09.168 --> 00:06:11.027
I would fill out a three right over there.


Long run self adjustment

WEBVTT
Kind: captions
Language: en

00:00:00.180 --> 00:00:01.740
- [Instructor] What we have depicted here

00:00:01.740 --> 00:00:04.620
is an economy in long-run equilibrium.

00:00:04.620 --> 00:00:07.950
Notice, the point at which
the aggregate demand curve

00:00:07.950 --> 00:00:11.350
and the short-run aggregate
supply curve intersect.

00:00:11.350 --> 00:00:15.910
That specifies an equilibrium
price level, PL sub one,

00:00:15.910 --> 00:00:18.840
and an equilibrium level of output,

00:00:18.840 --> 00:00:21.600
this equilibrium level
of output, Y sub one.

00:00:21.600 --> 00:00:23.450
But notice, that point of intersection,

00:00:23.450 --> 00:00:27.470
it also intersects the long-run
aggregate supply curve.

00:00:27.470 --> 00:00:32.160
And so that is also our
full employment output.

00:00:32.160 --> 00:00:33.030
And just a reminder,

00:00:33.030 --> 00:00:35.880
full employment output
does not mean that everyone

00:00:35.880 --> 00:00:37.690
in the economy is employed.

00:00:37.690 --> 00:00:41.030
It means that this is
the level of employment

00:00:41.030 --> 00:00:42.270
that is sustainable,

00:00:42.270 --> 00:00:43.860
the level of full employment.

00:00:43.860 --> 00:00:45.950
If for some reason the unemployment rate

00:00:45.950 --> 00:00:47.090
were to get lower than that,

00:00:47.090 --> 00:00:49.720
that that would be an
unsustainable situation

00:00:49.720 --> 00:00:51.670
for this economy.

00:00:51.670 --> 00:00:53.630
But what we really care
about in this video

00:00:53.630 --> 00:00:57.450
is what happens if our
aggregate demand curve shifts

00:00:57.450 --> 00:00:59.910
in the short-run and in the long-run?

00:00:59.910 --> 00:01:03.180
So let's just imagine there's
all sorts of positive news

00:01:03.180 --> 00:01:06.360
and aggregate demand shifts up.

00:01:06.360 --> 00:01:08.100
So let's imagine,

00:01:08.100 --> 00:01:10.910
so let me just shift our
aggregate demand curve.

00:01:11.820 --> 00:01:14.330
So it shifts like that.

00:01:14.330 --> 00:01:18.470
So all of a sudden everyone
has become more optimistic,

00:01:18.470 --> 00:01:20.400
and at a given price level,

00:01:20.400 --> 00:01:23.230
they just want to demand more output.

00:01:23.230 --> 00:01:26.200
Well what's going to
happen in this universe?

00:01:26.200 --> 00:01:27.500
Well in this universe,

00:01:27.500 --> 00:01:30.540
we have a new short-run equilibrium.

00:01:30.540 --> 00:01:32.870
So we are now right over there.

00:01:32.870 --> 00:01:34.610
Let's call this,

00:01:34.610 --> 00:01:38.610
let's call this price level two,

00:01:38.610 --> 00:01:42.660
and then this is output level two.

00:01:42.660 --> 00:01:45.150
So Y sub two here.

00:01:45.150 --> 00:01:46.890
And so what happened?

00:01:46.890 --> 00:01:48.730
Well in the short-run,

00:01:48.730 --> 00:01:52.900
we see that prices are going to go up.

00:01:52.900 --> 00:01:55.440
The suppliers of the output
are gonna say hey, hey,

00:01:55.440 --> 00:01:56.710
all these people want my output,

00:01:56.710 --> 00:01:58.250
now I'm gonna charge more for it.

00:01:58.250 --> 00:01:59.990
And I'm also going to increase output.

00:01:59.990 --> 00:02:01.610
I was like hey there's a bonanza going on.

00:02:01.610 --> 00:02:03.920
People are not only, not
only are they demanding more,

00:02:03.920 --> 00:02:05.420
but they're willing to pay for it more.

00:02:05.420 --> 00:02:08.490
And so our output actually goes beyond

00:02:08.490 --> 00:02:10.310
our full employment output.

00:02:10.310 --> 00:02:12.510
And so you can imagine maybe unemployment

00:02:12.510 --> 00:02:14.640
goes below the sustainable rate.

00:02:14.640 --> 00:02:16.240
All sorts of people
instead of going to school

00:02:16.240 --> 00:02:18.280
they're getting a job or whatever else.

00:02:18.280 --> 00:02:19.760
They're coming out of retirement to work

00:02:19.760 --> 00:02:21.610
because there's just a bonanza going on.

00:02:21.610 --> 00:02:24.460
But what's gonna happen in the long-run?

00:02:24.460 --> 00:02:26.760
Well in the long-run
people who are working

00:02:26.760 --> 00:02:28.150
and say gee you know,

00:02:28.150 --> 00:02:30.930
my firm is having this bonanza.

00:02:30.930 --> 00:02:32.880
When my employment contract comes due,

00:02:32.880 --> 00:02:35.050
I'm gonna ask for a raise.

00:02:35.050 --> 00:02:38.120
And so as labor prices go up,

00:02:38.120 --> 00:02:38.953
what's going to happen

00:02:38.953 --> 00:02:41.690
to the short-run aggregate supply curve?

00:02:42.570 --> 00:02:46.300
Yes, it is going to shift up as well.

00:02:46.300 --> 00:02:48.780
And so let's make it
shift well up as well.

00:02:48.780 --> 00:02:51.410
People are gonna demand more
and more and more and more

00:02:51.410 --> 00:02:53.100
and more and more money

00:02:53.100 --> 00:02:55.210
all the way to the point that we get to

00:02:55.210 --> 00:02:58.830
our sustainable level of output again.

00:02:58.830 --> 00:03:00.990
And so what really happened is,

00:03:00.990 --> 00:03:04.590
at first, we had this price inflation

00:03:04.590 --> 00:03:07.440
and output increased
beyond a sustainable level.

00:03:07.440 --> 00:03:09.250
And then people say hey no no no,

00:03:09.250 --> 00:03:11.388
I want, you know I want more for my time,

00:03:11.388 --> 00:03:14.720
and so as wages went up,

00:03:14.720 --> 00:03:17.670
then prices went up even further.

00:03:17.670 --> 00:03:18.960
And so we get back to,

00:03:18.960 --> 00:03:21.256
and if prices are going up even further,

00:03:21.256 --> 00:03:24.080
then even with this shifted
aggregate demand curve,

00:03:24.080 --> 00:03:26.650
people say well I might not
want that much of it anymore,

00:03:26.650 --> 00:03:29.940
and then we shift back to
this point right over here.

00:03:29.940 --> 00:03:34.780
And so now if this was
aggregate demand two

00:03:34.780 --> 00:03:36.810
after everyone got all optimistic,

00:03:36.810 --> 00:03:41.550
we will call this short-run
aggregate supply two.

00:03:41.550 --> 00:03:44.270
And our equilibrium price now

00:03:44.270 --> 00:03:46.960
is a good bit higher, price level three,

00:03:46.960 --> 00:03:51.140
but we are back to our
full employment output.

00:03:51.140 --> 00:03:53.540
So we could call this Y sub three,

00:03:53.540 --> 00:03:55.645
which is the same thing as Y sub one,

00:03:55.645 --> 00:03:58.580
which is equal to our
full employment output.

00:03:58.580 --> 00:04:00.610
And what you have just seen,

00:04:00.610 --> 00:04:04.430
this is known as the long-run
self-adjustment mechanism.

00:04:04.430 --> 00:04:06.830
It's an argument that
economists will sometimes make

00:04:06.830 --> 00:04:09.260
using this simplified model to say hey,

00:04:09.260 --> 00:04:12.510
if you're in a situation
that's either above

00:04:12.510 --> 00:04:15.310
your full employment output or below

00:04:15.310 --> 00:04:16.950
your full employment output,

00:04:16.950 --> 00:04:19.670
it's okay, it will in
the long-run self-adjust.

00:04:19.670 --> 00:04:22.230
Government might not have to intervene.

00:04:22.230 --> 00:04:23.550
In future videos or in other videos,

00:04:23.550 --> 00:04:25.854
we'll talk about how a
government might wanna intervene

00:04:25.854 --> 00:04:27.290
in either direction.

00:04:27.290 --> 00:04:29.020
But this is an argument
that's saying well look,

00:04:29.020 --> 00:04:31.020
that in the short-run things might deviate

00:04:31.020 --> 00:04:32.670
from your full employment output,

00:04:32.670 --> 00:04:34.430
but in the long-run they're going to,

00:04:34.430 --> 00:04:37.110
there's natural mechanisms that will allow

00:04:37.110 --> 00:04:40.240
output to get back to
your natural potential,

00:04:40.240 --> 00:04:42.110
your full employment output.


Short run and long run equilibrium and the business cycle

WEBVTT
Kind: captions
Language: en

00:00:00.250 --> 00:00:01.610
- [Instructor] What we're
going to do in this video

00:00:01.610 --> 00:00:04.750
is talk about the notion of equilibrium

00:00:04.750 --> 00:00:08.130
in a macroeconomics context.

00:00:08.130 --> 00:00:10.320
So let's review a little bit
of what we've already studied

00:00:10.320 --> 00:00:13.350
about aggregate demand
and aggregate supply.

00:00:13.350 --> 00:00:15.410
So this vertical axis here,

00:00:15.410 --> 00:00:16.860
that is the price level

00:00:16.860 --> 00:00:19.180
for the economy that
we are trying to study,

00:00:19.180 --> 00:00:22.210
and this horizontal axis right over here,

00:00:22.210 --> 00:00:25.240
this would be the real
GDP for that economy,

00:00:25.240 --> 00:00:28.540
the real GDP,

00:00:28.540 --> 00:00:31.110
and now I could draw an
aggregate demand curve.

00:00:31.110 --> 00:00:33.550
In previous videos we've talked at length

00:00:33.550 --> 00:00:37.670
why economists like to model
it as a downward-sloping curve,

00:00:37.670 --> 00:00:38.503
but once again,

00:00:38.503 --> 00:00:39.750
take all of these things
with a grain of salt.

00:00:39.750 --> 00:00:42.050
There's a lot of assumptions baked in,

00:00:42.050 --> 00:00:44.920
and then I could also
draw aggregate supply,

00:00:44.920 --> 00:00:46.527
aggregate supply.

00:00:46.527 --> 00:00:48.820
This would be short-run aggregate supply,

00:00:48.820 --> 00:00:50.330
upward-sloping curve,

00:00:50.330 --> 00:00:53.760
so I'll just call that
short-run aggregate supply,

00:00:53.760 --> 00:00:56.040
and I'll call that short-run
aggregate supply one,

00:00:56.040 --> 00:00:56.920
'cause we might look at

00:00:56.920 --> 00:00:58.750
other potential aggregate supply curves,

00:00:58.750 --> 00:00:59.583
I could also look at

00:00:59.583 --> 00:01:00.870
other potential aggregate demand curves,

00:01:00.870 --> 00:01:02.710
but let's just do that for now.

00:01:02.710 --> 00:01:04.520
So given these curves,

00:01:04.520 --> 00:01:08.700
what would be the price
level and the level of output

00:01:08.700 --> 00:01:09.800
for this economy?

00:01:09.800 --> 00:01:11.820
Pause this video and think about it.

00:01:11.820 --> 00:01:13.560
Well, some of you all might
just very naturally say,

00:01:13.560 --> 00:01:15.890
well, it would be the
output and the price level

00:01:15.890 --> 00:01:17.860
that corresponds to this
point of intersection,

00:01:17.860 --> 00:01:21.230
and if you said that,
you would be correct.

00:01:21.230 --> 00:01:26.230
So this would be our
short-run equilibrium output,

00:01:26.820 --> 00:01:27.930
let me label that.

00:01:27.930 --> 00:01:29.350
So that right over there

00:01:29.350 --> 00:01:34.210
is our short-run equilibrium,

00:01:34.210 --> 00:01:35.930
equilibrium,

00:01:37.190 --> 00:01:39.320
equilibrium output

00:01:40.160 --> 00:01:42.590
corresponds to where the
short-run aggregate supply

00:01:42.590 --> 00:01:45.510
intersects to the aggregate demand curve,

00:01:45.510 --> 00:01:47.890
and then this right over here

00:01:47.890 --> 00:01:50.570
would be our equilibrium price level.

00:01:50.570 --> 00:01:51.930
Let's call that PL1.

00:01:53.330 --> 00:01:54.420
Now why do we feel good

00:01:54.420 --> 00:01:57.480
that this would be the
short-run equilibrium output

00:01:57.480 --> 00:01:59.130
and this would be the price level?

00:01:59.130 --> 00:02:00.590
Well, let's imagine what would happen

00:02:00.590 --> 00:02:02.690
if we were at a lower price level,

00:02:02.690 --> 00:02:04.440
let's say right over here.

00:02:04.440 --> 00:02:09.440
At that price level, we
see that aggregate demand

00:02:09.440 --> 00:02:11.650
is outstripping aggregate supply.

00:02:11.650 --> 00:02:14.170
The output that the aggregate demand wants

00:02:14.170 --> 00:02:17.280
is much higher than the
output of the aggregate

00:02:17.280 --> 00:02:19.190
the short-run aggregate supply,

00:02:19.190 --> 00:02:21.500
and so that would be a shortage situation.

00:02:21.500 --> 00:02:24.190
There's not enough output
for all of that demand,

00:02:24.190 --> 00:02:26.080
and what would likely
happen in that situation?

00:02:26.080 --> 00:02:28.460
Well, the folks producing that
output would probably say,

00:02:28.460 --> 00:02:31.090
hey, I'm gonna charge a
little bit more for my output,

00:02:31.090 --> 00:02:32.500
and as they're charging more they'll say,

00:02:32.500 --> 00:02:34.330
hey, maybe I'll also produce
a little bit more output,

00:02:34.330 --> 00:02:35.830
and they'll move up the curve

00:02:35.830 --> 00:02:37.330
towards that equilibrium point,

00:02:37.330 --> 00:02:39.940
and then on the demand
side, people would say,

00:02:39.940 --> 00:02:42.750
hey, I'm not getting the output I need.

00:02:42.750 --> 00:02:44.450
I'm willing to pay more for it,

00:02:44.450 --> 00:02:48.090
but as the cost of that output
also goes up, the demand,

00:02:48.090 --> 00:02:50.060
the output demanded would go down,

00:02:50.060 --> 00:02:52.530
and we'd end up back at
that equilibrium point,

00:02:52.530 --> 00:02:54.200
and we could do the same
thought exercise if,

00:02:54.200 --> 00:02:58.350
for some reason we were at
a price level above PL1.

00:02:58.350 --> 00:03:01.010
In this situation, aggregate supply,

00:03:01.010 --> 00:03:02.680
short-run aggregate supply

00:03:02.680 --> 00:03:05.110
is a good bit higher
than aggregate demand,

00:03:05.110 --> 00:03:08.940
and so you have more output
than what is being demanded,

00:03:08.940 --> 00:03:10.920
and so what's likely to happen?

00:03:10.920 --> 00:03:12.690
Well, the suppliers,

00:03:12.690 --> 00:03:14.220
the people producing the output, will say,

00:03:14.220 --> 00:03:16.360
well, I'm gonna charge a
little bit less for my output,

00:03:16.360 --> 00:03:17.810
and produce less,

00:03:17.810 --> 00:03:20.560
and then similarly,
those demanding will say,

00:03:20.560 --> 00:03:22.810
hey, there's this glut of output.

00:03:22.810 --> 00:03:24.750
I'm gonna pay less for that output,

00:03:24.750 --> 00:03:26.280
but as they're able to pay
less for it, they'll say,

00:03:26.280 --> 00:03:27.650
hey, I want more and more of it,

00:03:27.650 --> 00:03:31.020
and we get back to the equilibrium point.

00:03:31.020 --> 00:03:34.870
Now, what we've talked about
so far is in the short run,

00:03:34.870 --> 00:03:35.940
but some of you might be saying,

00:03:35.940 --> 00:03:37.860
well, what about the long run?

00:03:37.860 --> 00:03:39.220
And in previous videos

00:03:39.220 --> 00:03:42.520
we have talked about
long-run aggregate supply,

00:03:42.520 --> 00:03:47.520
and so let's say that this
curve right over here represents

00:03:47.530 --> 00:03:52.530
the long-run aggregate supply curve,

00:03:52.860 --> 00:03:56.880
and where it intersects the
horizontal axis, this Yf,

00:03:58.290 --> 00:03:59.210
you could view this as

00:03:59.210 --> 00:04:01.930
the output of this economy
at full employment,

00:04:01.930 --> 00:04:03.790
and it's really the sustainable output

00:04:03.790 --> 00:04:06.820
of this economy at full employment,

00:04:06.820 --> 00:04:09.220
and so what's going on in
the graph right over here,

00:04:09.220 --> 00:04:11.430
our equilibrium output is

00:04:11.430 --> 00:04:13.500
well, our short-run equilibrium output

00:04:13.500 --> 00:04:17.620
is below our full employment output,

00:04:17.620 --> 00:04:20.120
and so we have a gap.

00:04:20.120 --> 00:04:24.490
So there's a negative to go
from our full employment output

00:04:24.490 --> 00:04:26.170
to our equilibrium output,

00:04:26.170 --> 00:04:27.760
and so if we wanted to think about this

00:04:27.760 --> 00:04:29.320
in the context of the business cycle,

00:04:29.320 --> 00:04:30.670
where would we be on it?

00:04:30.670 --> 00:04:33.070
So let's draw the business cycle.

00:04:33.070 --> 00:04:38.070
So now I'll make the vertical
axis the level of real output.

00:04:38.600 --> 00:04:43.190
So this would be real GDP right over here,

00:04:43.190 --> 00:04:45.620
and then on the horizontal axis,

00:04:45.620 --> 00:04:47.530
this will be the passage of time.

00:04:47.530 --> 00:04:50.890
That is time, and so what typically

00:04:50.890 --> 00:04:55.620
So at any given point in
time, there will be a Yf.

00:04:55.620 --> 00:04:59.210
There will be some
sustainable potential output

00:04:59.210 --> 00:05:00.630
for that economy,

00:05:00.630 --> 00:05:02.320
and when I say sustainable it means,

00:05:02.320 --> 00:05:04.560
you know, people are sleeping
properly, resting properly,

00:05:04.560 --> 00:05:07.040
you're not unsustainably
depleting resources,

00:05:07.040 --> 00:05:09.160
and so, for example,
at this point in time,

00:05:09.160 --> 00:05:11.800
that might be the Yf,

00:05:11.800 --> 00:05:14.750
and that may be a few years later.

00:05:14.750 --> 00:05:16.610
Maybe the population has grown,

00:05:16.610 --> 00:05:19.330
there's more infrastructure,
technology's improved.

00:05:19.330 --> 00:05:22.210
So now they can sustainably produce more,

00:05:22.210 --> 00:05:24.210
and then a few years after that,

00:05:24.210 --> 00:05:25.920
maybe they could produce even more.

00:05:25.920 --> 00:05:27.460
Population grows,

00:05:27.460 --> 00:05:29.520
they've thought about better ways

00:05:29.520 --> 00:05:31.240
to arrange the resources in their economy,

00:05:31.240 --> 00:05:32.350
technology improves,

00:05:32.350 --> 00:05:34.550
and so you could imagine a world

00:05:34.550 --> 00:05:36.790
where that full employment output

00:05:36.790 --> 00:05:41.100
could just grow in a
very nice way like this,

00:05:41.100 --> 00:05:43.220
where it could just grow nicely like this,

00:05:43.220 --> 00:05:45.910
but we know that's not the
way real economies work.

00:05:45.910 --> 00:05:47.850
They experience the business cycle,

00:05:47.850 --> 00:05:51.620
and the business cycle
looks more like this.

00:05:51.620 --> 00:05:54.730
So it will look more like this,

00:05:54.730 --> 00:05:57.320
where you have your
peaks and these troughs,

00:05:57.320 --> 00:06:00.800
a boom-and-bust cycle, sometimes
people will talk about it,

00:06:00.800 --> 00:06:02.640
and the parts of this curve

00:06:02.640 --> 00:06:07.510
where you have increasing
real GDP, like there,

00:06:07.510 --> 00:06:12.460
or there, or there, we
would call those expansions.

00:06:12.460 --> 00:06:15.870
So that is economic expansion,

00:06:15.870 --> 00:06:19.450
and the parts where GDP is receding.

00:06:19.450 --> 00:06:23.760
So for example, right over
here, right over here,

00:06:23.760 --> 00:06:26.350
we would call those recessions,

00:06:26.350 --> 00:06:27.860
recessions,

00:06:27.860 --> 00:06:30.050
but let's go back to our aggregate demand

00:06:30.050 --> 00:06:32.870
and aggregate supply
world right over here.

00:06:32.870 --> 00:06:35.320
This equilibrium point, Y1,

00:06:35.320 --> 00:06:37.360
what point could that correspond to

00:06:38.780 --> 00:06:41.360
on this graph right over
here of the business cycle?

00:06:41.360 --> 00:06:42.210
And let me label that.

00:06:42.210 --> 00:06:44.380
This is the business

00:06:44.380 --> 00:06:46.040
the business cycle.

00:06:46.040 --> 00:06:46.873
Pause this video.

00:06:46.873 --> 00:06:49.586
Think about what point
it could correspond to.

00:06:49.586 --> 00:06:50.520
Well, we're at a point

00:06:50.520 --> 00:06:52.840
where a short-run equilibrium output

00:06:52.840 --> 00:06:56.240
is below our full employment output,

00:06:56.240 --> 00:06:57.420
our potential output,

00:06:57.420 --> 00:06:59.630
our sustainable full potential output.

00:06:59.630 --> 00:07:01.600
So this would correspond to some point

00:07:01.600 --> 00:07:05.900
where our real GDP is sitting
below this blue curve,

00:07:05.900 --> 00:07:08.030
or this blue line the way I've drawn it,

00:07:08.030 --> 00:07:12.060
and so Y1 could, for
example, be this point,

00:07:12.060 --> 00:07:15.040
or it could be that point,
or it could be that point,

00:07:15.040 --> 00:07:18.180
and so if it was this one right over here,

00:07:18.180 --> 00:07:20.530
then that right over there would be Y1

00:07:23.362 --> 00:07:25.910
and this right over here would be the Yf,

00:07:27.040 --> 00:07:31.930
would be the Yf for this point in time.

00:07:31.930 --> 00:07:35.340
Now, as we go forward in time, this Yf,

00:07:35.340 --> 00:07:38.210
we see this economic growth,
it could move to the right,

00:07:38.210 --> 00:07:40.500
as population grows, as
we have better technology,

00:07:40.500 --> 00:07:42.460
et cetera, et cetera, et cetera,

00:07:42.460 --> 00:07:46.196
but you're probably thinking,
well, what about other points?

00:07:46.196 --> 00:07:48.000
Are there other possible scenarios?

00:07:48.000 --> 00:07:51.070
And my answer to you would be absolutely.

00:07:51.070 --> 00:07:54.330
So you could imagine a world
where the equilibrium output

00:07:54.330 --> 00:07:57.020
is to the right of our potential output,

00:07:57.020 --> 00:07:58.660
and I will construct that

00:07:58.660 --> 00:08:01.760
by making a different short-run
aggregate supply curve,

00:08:01.760 --> 00:08:02.760
although I could also do that

00:08:02.760 --> 00:08:04.550
by shifting the aggregate demand curve,

00:08:04.550 --> 00:08:06.610
and we'll do that in future videos,

00:08:06.610 --> 00:08:08.720
but imagine a situation like this,

00:08:08.720 --> 00:08:09.553
imagine.

00:08:09.553 --> 00:08:13.150
So I'll call this short-run
aggregate supply two,

00:08:13.150 --> 00:08:16.670
and now this is our equilibrium,

00:08:16.670 --> 00:08:20.210
equilibrium output, Y2,

00:08:20.210 --> 00:08:23.350
and it corresponds to price level,

00:08:23.350 --> 00:08:26.180
price level two right over here,

00:08:26.180 --> 00:08:31.130
and notice, here there's a
gap, but it's a positive gap.

00:08:31.130 --> 00:08:34.140
Our actual output is above
our sustainable output,

00:08:34.140 --> 00:08:35.210
and so for example,

00:08:35.210 --> 00:08:39.240
this could correspond to maybe this point.

00:08:39.240 --> 00:08:41.130
If it does correspond to this point,

00:08:41.130 --> 00:08:45.340
so if this was Y2, then this
would be our current Yf.

00:08:45.340 --> 00:08:46.750
I didn't actually shift it,

00:08:46.750 --> 00:08:49.860
but hopefully you're
getting the general idea,

00:08:49.860 --> 00:08:50.693
and you're saying,

00:08:50.693 --> 00:08:52.780
well, how can you produce
beyond full employment?

00:08:52.780 --> 00:08:55.540
How can you produce beyond
your sustainable potential?

00:08:55.540 --> 00:08:58.510
Well, this is an economy
that is producing output

00:08:58.510 --> 00:09:00.260
in an unsustainable way.

00:09:00.260 --> 00:09:02.600
Unemployment is unusually low.

00:09:02.600 --> 00:09:04.800
You have, maybe, depleting resources.

00:09:04.800 --> 00:09:06.020
People are working too hard.

00:09:06.020 --> 00:09:06.960
They're getting stressed out.

00:09:06.960 --> 00:09:08.130
They're not sleeping properly.

00:09:08.130 --> 00:09:09.180
However you wanna think about it,

00:09:09.180 --> 00:09:11.430
it's not considered sustainable,

00:09:11.430 --> 00:09:12.800
and then you have a third scenario

00:09:12.800 --> 00:09:14.770
where your short-run equilibrium output

00:09:14.770 --> 00:09:17.400
actually equals your
full employment output,

00:09:17.400 --> 00:09:21.480
and so that could be this
scenario right over here.

00:09:21.480 --> 00:09:25.800
So this would be our short-run
aggregate supply three,

00:09:25.800 --> 00:09:30.140
and notice over here, our
equilibrium output, Y3,

00:09:30.140 --> 00:09:33.200
is equal to our full employment output,

00:09:33.200 --> 00:09:34.560
and when this happens,

00:09:34.560 --> 00:09:37.960
this is considered a long-run equilibrium.

00:09:37.960 --> 00:09:39.150
So let me write that down.

00:09:39.150 --> 00:09:44.150
That is considered a long-run equilibrium,

00:09:44.280 --> 00:09:45.470
equilibrium,

00:09:46.750 --> 00:09:50.620
and points that correspond
to long-run equilibria

00:09:50.620 --> 00:09:52.680
on this business cycle right over here

00:09:52.680 --> 00:09:54.750
would be this point right over there,

00:09:54.750 --> 00:09:58.530
and that point, and that
point, and that point.

00:09:58.530 --> 00:09:59.860
So I'll leave you there.

00:09:59.860 --> 00:10:00.840
In future videos,

00:10:00.840 --> 00:10:03.220
we will actually think
about how aggregate demand

00:10:03.220 --> 00:10:05.960
and short-run aggregate supply will shift,

00:10:05.960 --> 00:10:07.500
and connect it even further

00:10:07.500 --> 00:10:09.940
to the cycles in the business cycle.


Winners and losers from inflation and deflation

WEBVTT
Kind: captions
Language: en

00:00:00.000 --> 00:00:02.440
- [Tutor] What we're
going to do in this video

00:00:02.440 --> 00:00:04.515
is talk more about
inflation and deflation,

00:00:04.515 --> 00:00:06.776
which we've talked about in other videos,

00:00:06.776 --> 00:00:09.350
but we're gonna talk
about it in the context

00:00:09.350 --> 00:00:11.670
of who benefits and who gets hurt,

00:00:11.670 --> 00:00:13.450
especially in a situation where people

00:00:13.450 --> 00:00:16.680
are lending money to each
other at fixed rates,

00:00:16.680 --> 00:00:19.130
so let's set up a little scenario here.

00:00:19.130 --> 00:00:21.370
So let's say that this is today

00:00:22.470 --> 00:00:24.450
and this is in one year,

00:00:24.450 --> 00:00:28.490
so in one year

00:00:28.490 --> 00:00:32.820
and today I need my teeth
cleaned, it's an emergency,

00:00:32.820 --> 00:00:34.950
but I don't have money to clean my teeth,

00:00:34.950 --> 00:00:37.443
it costs 100 dollars and
you're my okay friend

00:00:37.443 --> 00:00:39.810
and you say "Yes, you do
need your teeth cleaned,

00:00:39.810 --> 00:00:42.020
"I will lend you 100 dollars,

00:00:42.020 --> 00:00:44.530
"but I want to charge some interest,"

00:00:44.530 --> 00:00:46.470
so today from my point of view,

00:00:46.470 --> 00:00:51.220
I am going to borrow, I am going to borrow

00:00:51.220 --> 00:00:54.600
100 dollars from you, my okay friend

00:00:54.600 --> 00:00:56.123
and in a year I have to pay back,

00:00:56.123 --> 00:00:57.923
you're gonna charge me 10% interest,

00:00:57.923 --> 00:01:00.110
so I'm gonna have to pay back,

00:01:00.110 --> 00:01:01.755
pay back

00:01:01.755 --> 00:01:04.150
110 dollars.

00:01:04.150 --> 00:01:08.310
Now let's think about some
different scenarios on inflation,

00:01:08.310 --> 00:01:10.990
so let's imagine a world,
where there's no inflation,

00:01:10.990 --> 00:01:14.290
so let's say today is my base period,

00:01:14.290 --> 00:01:16.240
where the CPI is 100

00:01:16.240 --> 00:01:18.660
and let's imagine that
the actual basket of goods

00:01:18.660 --> 00:01:21.610
in our country is actually 100 dollars,

00:01:21.610 --> 00:01:24.130
it'll help us visualize
things a little bit more

00:01:24.130 --> 00:01:26.300
and let's say we have no inflation,

00:01:26.300 --> 00:01:29.120
so in one year, the CPI,
that basket of goods

00:01:29.120 --> 00:01:32.290
is still 100 dollars,

00:01:32.290 --> 00:01:34.363
so in real terms and in future videos,

00:01:34.363 --> 00:01:38.220
we'll talk more about
real and nominal terms,

00:01:38.220 --> 00:01:42.741
but in real terms, you could
buy 10% more with 110 dollars,

00:01:42.741 --> 00:01:44.750
than you could with that 100 dollars,

00:01:44.750 --> 00:01:48.710
so you really got a real 10% return,

00:01:48.710 --> 00:01:49.791
but now let's imagine a scenario

00:01:49.791 --> 00:01:52.520
with a little bit of
inflation, a reasonable amount,

00:01:52.520 --> 00:01:56.315
where in our base here, our CPI is 100

00:01:56.315 --> 00:01:59.610
and then in a year, maybe
we've had 2% inflation,

00:01:59.610 --> 00:02:04.010
so now our Consumer Price Index is 102,

00:02:05.160 --> 00:02:07.460
well in this scenario, you're now,

00:02:07.460 --> 00:02:09.390
and especially if we
view that basket of goods

00:02:09.390 --> 00:02:12.570
as actually costing 100
dollars in the first year

00:02:12.570 --> 00:02:16.100
and then 102 dollars one year
later, as we've talked about,

00:02:16.100 --> 00:02:17.560
that's not always going to be the case,

00:02:17.560 --> 00:02:18.920
in fact in most countries,

00:02:18.920 --> 00:02:20.860
it's not that you could actually buy

00:02:20.860 --> 00:02:23.340
that basket of goods for 100 dollars,

00:02:23.340 --> 00:02:25.320
the 100 is usually just to be indicative,

00:02:25.320 --> 00:02:27.730
but this is to help us make things

00:02:27.730 --> 00:02:29.080
a little bit more tangible.

00:02:29.080 --> 00:02:31.560
In this world, you're going to be able

00:02:31.560 --> 00:02:34.941
to buy more than a basket
of goods, but not 10% more,

00:02:34.941 --> 00:02:36.620
you're going to be able to buy

00:02:36.620 --> 00:02:38.740
a little bit less than 8% more

00:02:39.610 --> 00:02:40.651
and then we can set up a scenario,

00:02:40.651 --> 00:02:43.260
where we have fairly extreme inflation

00:02:43.260 --> 00:02:45.140
and this will make things very clear,

00:02:45.140 --> 00:02:47.580
where our CPI goes from 100

00:02:47.580 --> 00:02:51.880
to let's say that price
is more than double,

00:02:51.880 --> 00:02:53.406
so let's say we go to
a world, where our CPI,

00:02:53.406 --> 00:02:56.254
so this would be pretty extreme inflation,

00:02:56.254 --> 00:03:00.160
where our CPI goes to 220.

00:03:00.160 --> 00:03:02.160
So this is really interesting,

00:03:02.160 --> 00:03:04.780
because in right now at the present,

00:03:04.780 --> 00:03:06.730
what you are lending me,

00:03:06.730 --> 00:03:09.162
that's equivalent to the basket of goods,

00:03:09.162 --> 00:03:12.000
I could actually buy the
basket of goods there,

00:03:12.000 --> 00:03:14.510
while in year one, what
I'm paying back to you,

00:03:14.510 --> 00:03:17.300
you could only buy half a basket of goods

00:03:17.300 --> 00:03:18.854
and so you lent me money

00:03:18.854 --> 00:03:22.086
and even though nominally
it looks just superficially

00:03:22.086 --> 00:03:25.410
like you're getting 10%
more in terms of dollars,

00:03:25.410 --> 00:03:29.430
you can buy half as much
with that 110 dollars

00:03:29.430 --> 00:03:33.330
as you could have bought a
year ago with that 100 dollars,

00:03:33.330 --> 00:03:35.293
so in this world, even
though it looks like

00:03:35.293 --> 00:03:38.260
you're getting a 10% nominal return,

00:03:38.260 --> 00:03:40.310
your real return is pretty bad,

00:03:40.310 --> 00:03:43.640
your real return is negative 50%,

00:03:43.640 --> 00:03:46.040
you can buy half as much
with what you're getting

00:03:46.040 --> 00:03:48.830
paid back as what you originally lent

00:03:48.830 --> 00:03:51.010
and so the general trend here

00:03:51.010 --> 00:03:53.649
is when you are in an
inflationary environment,

00:03:53.649 --> 00:03:57.350
especially when the inflation
is more than expected,

00:03:57.350 --> 00:04:00.760
oftentimes the interest rate
will bake in some inflation,

00:04:00.760 --> 00:04:03.388
people will expect some
inflation in the interest rate,

00:04:03.388 --> 00:04:05.521
but in general, inflation is going to,

00:04:05.521 --> 00:04:06.634
the more inflation you have,

00:04:06.634 --> 00:04:08.590
if you think about it
from my point of view,

00:04:08.590 --> 00:04:09.707
I borrowed something where

00:04:09.707 --> 00:04:11.740
I could have bought the basket of goods,

00:04:11.740 --> 00:04:12.960
if you imagine the basket of goods

00:04:12.960 --> 00:04:14.480
actually costs 100 dollars

00:04:14.480 --> 00:04:16.470
and I'm paying back something,

00:04:16.470 --> 00:04:18.840
where that would only buy
half a basket of goods,

00:04:18.840 --> 00:04:21.090
you could even imagine
with that 100 dollars,

00:04:21.090 --> 00:04:23.900
I buy a basket of goods
and then a year later,

00:04:23.900 --> 00:04:26.750
I sell that basket of
goods for 220 dollars

00:04:26.750 --> 00:04:28.130
and then I only have to pay half

00:04:28.130 --> 00:04:30.400
of that 220 dollars back to you

00:04:30.400 --> 00:04:32.670
and so I wouldn't have
got my teeth cleaned

00:04:32.670 --> 00:04:34.060
in that situation,

00:04:34.060 --> 00:04:36.520
but I would have been able
to profit from that thing

00:04:36.520 --> 00:04:37.730
and so inflation,

00:04:37.730 --> 00:04:40.480
especially when it's more
than expected inflation,

00:04:40.480 --> 00:04:42.970
it benefits borrowers at fixed rates,

00:04:42.970 --> 00:04:45.620
benefits borrowers

00:04:45.620 --> 00:04:46.453
at fixed rates

00:04:46.453 --> 00:04:49.290
and I keep saying at fixed rates,

00:04:49.290 --> 00:04:51.040
because it's possible
that your interest rate

00:04:51.040 --> 00:04:52.323
might somehow be pegged to inflation,

00:04:52.323 --> 00:04:54.690
in which case it might
not benefit you so much

00:04:54.690 --> 00:04:58.960
and it hurts lenders, it hurts lenders

00:04:58.960 --> 00:05:01.040
at fixed rates.

00:05:01.040 --> 00:05:02.270
Now as you can imagine,

00:05:02.270 --> 00:05:03.709
deflation is going to be the opposite

00:05:03.709 --> 00:05:05.300
and to make this very clear,

00:05:05.300 --> 00:05:08.900
I'll make a very extreme
deflationary scenario.

00:05:08.900 --> 00:05:13.150
Imagine we go from a CPI of 100

00:05:13.150 --> 00:05:15.430
to a CPI,

00:05:15.430 --> 00:05:18.000
CPI of 55

00:05:18.000 --> 00:05:20.394
and if we literally view
that same basket of goods,

00:05:20.394 --> 00:05:22.600
that would have cost 100 dollars

00:05:22.600 --> 00:05:25.940
only costs 55 dollars now, think about it,

00:05:25.940 --> 00:05:29.427
I am borrowing equivalent
of a basket of goods

00:05:29.427 --> 00:05:33.620
and then I'm paying back to
you two baskets of goods,

00:05:33.620 --> 00:05:37.440
110 dollars would buy two
baskets of goods in a year

00:05:37.440 --> 00:05:39.960
and so in this deflationary scenario,

00:05:39.960 --> 00:05:43.340
in this deflationary scenario,

00:05:43.340 --> 00:05:45.218
you are actually getting,
even though nominally,

00:05:45.218 --> 00:05:47.460
it looks like you're getting a 10% return,

00:05:47.460 --> 00:05:49.550
the lender's getting a 10% return,

00:05:49.550 --> 00:05:51.813
the real return, they're
getting 100% return,

00:05:51.813 --> 00:05:54.220
they're able to buy twice as much

00:05:54.220 --> 00:05:57.330
with what they get back,
than what they lent

00:05:57.330 --> 00:06:01.370
and so this deflation hurts
borrowers at fixed rates,

00:06:01.370 --> 00:06:03.310
hurts borrowers

00:06:04.470 --> 00:06:05.570
at fixed rates

00:06:05.570 --> 00:06:09.610
and it helps, and it helps lenders,

00:06:09.610 --> 00:06:12.040
lenders at fixed rates.


Example question calculating CPI and inflation

WEBVTT
Kind: captions
Language: en

00:00:01.120 --> 00:00:03.760
- [Instructor] The CPI,
or Consumer Price Index,

00:00:03.760 --> 00:00:07.500
is used to measure the cost
of a typical basket of goods.

00:00:07.500 --> 00:00:10.910
The typical household in
the nation of Jacksonia

00:00:10.910 --> 00:00:12.670
buys four loaves of bread,

00:00:12.670 --> 00:00:14.530
three pounds of cream cheese,

00:00:14.530 --> 00:00:16.750
and eight books each week.

00:00:16.750 --> 00:00:20.583
The prices of these goods in years 2015,

00:00:20.583 --> 00:00:21.800
2016,

00:00:21.800 --> 00:00:25.900
and 2017 are given in the table below.

00:00:25.900 --> 00:00:27.560
And then they ask us some questions.

00:00:27.560 --> 00:00:31.300
Calculate the CPI in 2017,
using 2016 as the base year.

00:00:31.300 --> 00:00:35.730
Calculate the CPI in 2015,
using 2016 as the base year.

00:00:35.730 --> 00:00:39.320
Calculate the rate of inflation
between 2015 and 2016.

00:00:39.320 --> 00:00:42.920
Calculate the rate of inflation
between 2016 and 2017.

00:00:42.920 --> 00:00:45.020
And then describe a reason
why the inflation rate

00:00:45.020 --> 00:00:48.730
between 2016 and 2017
might overstate the changes

00:00:48.730 --> 00:00:49.980
in cost of living.

00:00:49.980 --> 00:00:50.960
So pause this video,

00:00:50.960 --> 00:00:54.040
and see if you can work through
it before I do it with you.

00:00:54.040 --> 00:00:56.440
All right, now let's
just do it step by step.

00:00:56.440 --> 00:00:58.930
So these first two letters,
they want us to calculate

00:00:58.930 --> 00:01:01.610
the CPIs in 2017 and 2015,

00:01:01.610 --> 00:01:04.180
using 2016 as a base year.

00:01:04.180 --> 00:01:05.350
So the way I'm going to do it,

00:01:05.350 --> 00:01:09.190
I'm going to set up a new
column here, which is cost of

00:01:09.190 --> 00:01:10.720
the weekly basket,

00:01:10.720 --> 00:01:12.780
and they tell us how
much they buy each week,

00:01:12.780 --> 00:01:15.210
cost of weekly,

00:01:15.210 --> 00:01:16.740
weekly

00:01:16.740 --> 00:01:18.270
basket.

00:01:18.270 --> 00:01:19.970
Let's see, in 2015,

00:01:19.970 --> 00:01:22.550
they buy four loaves of bread at $1 each.

00:01:22.550 --> 00:01:25.210
So it's going to be four times one,

00:01:25.210 --> 00:01:28.810
plus they buy three pounds of
cream cheese at $3 a pound,

00:01:28.810 --> 00:01:31.230
plus three times three,

00:01:31.230 --> 00:01:33.440
plus they buy eight books a week,

00:01:33.440 --> 00:01:35.270
these people like to read, and so,

00:01:35.270 --> 00:01:39.320
and each book in 2015 is
$10, so eight times 10,

00:01:39.320 --> 00:01:40.410
eight times 10.

00:01:40.410 --> 00:01:43.590
And this is going to be equal
to four times one is four,

00:01:43.590 --> 00:01:46.160
plus nine is 13,

00:01:46.160 --> 00:01:47.670
plus 80

00:01:47.670 --> 00:01:51.430
is going to be $93.

00:01:51.430 --> 00:01:55.500
Now, that same basket,
that weekly basket in 2016,

00:01:55.500 --> 00:01:58.440
where we're buying four
loves of bread at $2 now,

00:01:58.440 --> 00:02:00.090
four times two,

00:02:00.090 --> 00:02:02.010
plus we're buying three pounds

00:02:02.010 --> 00:02:04.400
of cream cheese at $6 a pound now,

00:02:04.400 --> 00:02:07.110
plus three times six,

00:02:07.110 --> 00:02:10.430
plus eight books per week at $20 per book,

00:02:10.430 --> 00:02:12.600
eight times 20.

00:02:12.600 --> 00:02:17.300
This is going to be equal to
eight plus 18, which is 26,

00:02:17.300 --> 00:02:19.520
plus 160

00:02:19.520 --> 00:02:21.830
is 186.

00:02:21.830 --> 00:02:25.890
So this is going to be $186.

00:02:25.890 --> 00:02:29.430
And now we're going to do
the same thing in 2017.

00:02:29.430 --> 00:02:31.280
Each week, you're going to
get four loaves of bread.

00:02:31.280 --> 00:02:33.340
Now it's $3 per loaf,

00:02:33.340 --> 00:02:36.980
plus we're buying three pounds
of cream cheese per week,

00:02:36.980 --> 00:02:39.670
three, it's still at $6 per pound,

00:02:39.670 --> 00:02:43.720
plus eight books per week at $25 per book.

00:02:43.720 --> 00:02:48.270
And so this is going to be equal
to 12 plus 18, which is 30,

00:02:48.270 --> 00:02:50.830
plus 200, which is going to be $230.

00:02:53.396 --> 00:02:57.100
And now we can calculate the CPIs.

00:02:57.100 --> 00:02:59.470
So the CPI,

00:02:59.470 --> 00:03:02.330
it's typical that it's going
to be 100 in your base year,

00:03:02.330 --> 00:03:04.830
should be 100, so I could
just put that there.

00:03:04.830 --> 00:03:09.040
And for the other years, you
could say the basket cost,

00:03:09.040 --> 00:03:11.650
cost in year,

00:03:11.650 --> 00:03:13.800
divided by the cost in base year,

00:03:13.800 --> 00:03:17.960
cost in base year,

00:03:17.960 --> 00:03:18.793
year,

00:03:18.793 --> 00:03:20.460
times 100.

00:03:20.460 --> 00:03:24.100
So obviously, in 2016, that's
going to be the cost in 2016

00:03:24.100 --> 00:03:26.760
divided by the cost in 2016 times 100.

00:03:26.760 --> 00:03:27.970
You'll get 100.

00:03:27.970 --> 00:03:31.740
But for 2015, it will be the
cost of the basket in 2015,

00:03:31.740 --> 00:03:33.300
which is $93,

00:03:33.300 --> 00:03:38.080
divided by the cost in
2016, which is $186,

00:03:38.080 --> 00:03:39.820
times 100.

00:03:39.820 --> 00:03:41.420
This one is actually
pretty straightforward.

00:03:41.420 --> 00:03:45.650
93 is half of 186, so this
is going to be equal to 50.

00:03:45.650 --> 00:03:47.240
And then in 2017,

00:03:47.240 --> 00:03:50.950
it's going to be the cost
of the basket in 2017

00:03:50.950 --> 00:03:52.140
divided by

00:03:52.140 --> 00:03:55.800
the cost of the basket in 2016,

00:03:55.800 --> 00:03:58.800
times 100, which is going to be equal to,

00:03:58.800 --> 00:04:00.300
I'm going to use the
calculator for this one.

00:04:00.300 --> 00:04:02.130
230

00:04:02.130 --> 00:04:05.320
divided by 186

00:04:05.320 --> 00:04:09.090
is equal to approximately 1.24.

00:04:09.090 --> 00:04:12.970
If we multiply that times 100,
we'll say it's approximately,

00:04:12.970 --> 00:04:15.670
it is approximately

00:04:15.670 --> 00:04:16.620
124.

00:04:18.170 --> 00:04:22.570
So calculate the CPI in 2017,
using 2016 as the base year.

00:04:22.570 --> 00:04:24.880
It would be 124.

00:04:24.880 --> 00:04:29.010
Calculate the CPI in 2015,
using 2016 as the base year.

00:04:29.010 --> 00:04:31.290
That is 50.

00:04:31.290 --> 00:04:36.290
Calculate the rate of inflation
between 2015 and 2016.

00:04:36.350 --> 00:04:38.520
So how much do prices grow

00:04:38.520 --> 00:04:43.520
if we take this basket of
goods from 2015 to 2016?

00:04:43.520 --> 00:04:44.800
Well, you could look at your CPI.

00:04:44.800 --> 00:04:48.100
It went from 50 to 100, so prices doubled.

00:04:48.100 --> 00:04:51.030
And so if something is
double, it grew by 100%.

00:04:51.030 --> 00:04:54.220
And the rate of inflation
is the growth in prices.

00:04:54.220 --> 00:04:57.150
And so this is 100% inflation.

00:04:57.150 --> 00:04:59.240
Things doubled in price,
and you could see it here.

00:04:59.240 --> 00:05:02.970
Everything doubled in
price right over here.

00:05:02.970 --> 00:05:07.970
Calculate the rate of inflation
between 2016 and 2017.

00:05:08.040 --> 00:05:11.860
Well, if you start at
100 and you grow to 124,

00:05:11.860 --> 00:05:15.630
you have just grown by 24%.

00:05:15.630 --> 00:05:18.190
One way to think about it
is you multiply by 1.24,

00:05:18.190 --> 00:05:21.070
which is the same thing as growing by 24%.

00:05:21.070 --> 00:05:25.090
So that 24% growth is
the rate of inflation.

00:05:25.090 --> 00:05:27.190
Describe a reason why the inflation rate

00:05:27.190 --> 00:05:29.080
between 2016 and 2017,

00:05:29.080 --> 00:05:31.660
so that's what we answered
right here in part d,

00:05:31.660 --> 00:05:34.850
might overstate changes
in the cost of living.

00:05:34.850 --> 00:05:37.180
And if you haven't answered
that part yet, I encourage you,

00:05:37.180 --> 00:05:39.030
given all that we've done,
try to pause the video,

00:05:39.030 --> 00:05:40.890
and try to think about that.

00:05:40.890 --> 00:05:45.130
So let's look at what
happened from 2016 to 2017.

00:05:45.130 --> 00:05:48.840
The price of a loaf of
bread increases by 50%.

00:05:48.840 --> 00:05:52.010
The price of a book increases
by $5 on a base of 20.

00:05:52.010 --> 00:05:54.490
That's an increase of 25%.

00:05:54.490 --> 00:05:58.970
But the price of cream cheese
does not change, plus 0%.

00:05:58.970 --> 00:06:03.020
It experiences no inflation
from 2016 to 2017.

00:06:03.020 --> 00:06:06.950
And so you could imagine a
scenario where if some goods,

00:06:06.950 --> 00:06:09.870
their prices increased a
lot while others don't,

00:06:09.870 --> 00:06:11.940
the basket of goods might change.

00:06:11.940 --> 00:06:15.100
People might buy less
bread and fewer books

00:06:15.100 --> 00:06:17.110
and more cream cheese.

00:06:17.110 --> 00:06:20.500
And so we could say the typical

00:06:21.830 --> 00:06:22.663
basket

00:06:24.600 --> 00:06:25.433
might

00:06:26.900 --> 00:06:28.050
get

00:06:28.050 --> 00:06:29.060
more

00:06:30.130 --> 00:06:30.963
weighted

00:06:32.610 --> 00:06:34.200
to goods

00:06:35.510 --> 00:06:37.150
that

00:06:37.150 --> 00:06:38.400
had less inflation,

00:06:38.400 --> 00:06:39.490
had

00:06:39.490 --> 00:06:41.050
less

00:06:41.050 --> 00:06:41.980
inflation,

00:06:44.270 --> 00:06:49.240
example, in this case,
would be cream cheese,

00:06:49.240 --> 00:06:51.030
cream cheese

00:06:52.150 --> 00:06:53.090
because

00:06:55.290 --> 00:06:56.690
they

00:06:56.690 --> 00:06:59.130
look relatively,

00:07:00.080 --> 00:07:02.190
relatively cheaper

00:07:03.340 --> 00:07:05.680
to the goods that had more inflation.

00:07:05.680 --> 00:07:10.680
And if that happened, you would
have a lower actual growth,

00:07:11.500 --> 00:07:12.730
actual growth

00:07:14.110 --> 00:07:16.530
in cost

00:07:16.530 --> 00:07:18.370
of living.

00:07:18.370 --> 00:07:21.430
And this last question
really alludes to the fact

00:07:21.430 --> 00:07:25.840
that the CPI isn't necessarily
a perfect indicator,

00:07:25.840 --> 00:07:28.400
that as different goods in the basket

00:07:28.400 --> 00:07:30.990
have a price inflation at different rates,

00:07:30.990 --> 00:07:32.610
you could have a substitution effect

00:07:32.610 --> 00:07:34.390
between the various goods.

00:07:34.390 --> 00:07:38.600
Now, in countries, they try to
rebalance the basket of goods

00:07:38.600 --> 00:07:41.160
based on a perception of what is typical.

00:07:41.160 --> 00:07:44.170
But once again, that is not
necessarily going to be perfect.