Calculating average velocity or speed

WEBVTT
Kind: captions
Language: en

00:00:00.527 --> 00:00:02.860
Now that we know a little bit
about vectors and scalars,

00:00:02.860 --> 00:00:06.365
let's try to apply what we
know about them for some pretty

00:00:06.365 --> 00:00:08.490
common problems you'd, one,
see in a physics class,

00:00:08.490 --> 00:00:10.720
but they're also common problems
you'd see in everyday life,

00:00:10.720 --> 00:00:12.900
because you're trying to
figure out how far you've gone,

00:00:12.900 --> 00:00:14.660
or how fast you're
going, or how long it

00:00:14.660 --> 00:00:17.190
might take you to
get some place.

00:00:17.190 --> 00:00:20.320
So first I have, if
Shantanu was able to travel

00:00:20.320 --> 00:00:25.540
5 kilometers north in
1 hour in his car, what

00:00:25.540 --> 00:00:28.207
was his average velocity?

00:00:28.207 --> 00:00:29.790
So one, let's just
review a little bit

00:00:29.790 --> 00:00:32.240
about what we know about
vectors and scalars.

00:00:32.240 --> 00:00:35.350
So they're giving us that
he was able to travel

00:00:35.350 --> 00:00:37.860
5 kilometers to the north.

00:00:37.860 --> 00:00:42.250
So they gave us a magnitude,
that's the 5 kilometers.

00:00:42.250 --> 00:00:45.530
That's the size of
how far he moved.

00:00:45.530 --> 00:00:47.340
And they also give a direction.

00:00:47.340 --> 00:00:50.410
So he moved a distance
of 5 kilometers.

00:00:50.410 --> 00:00:51.980
Distance is the scalar.

00:00:51.980 --> 00:00:55.710
But if you give the direction
too, you get the displacement.

00:00:55.710 --> 00:00:57.390
So this right here
is a vector quantity.

00:00:57.390 --> 00:01:01.100
He was displaced 5
kilometers to the north.

00:01:01.100 --> 00:01:03.350
And he did it in
1 hour in his car.

00:01:03.350 --> 00:01:06.050
What was his average velocity?

00:01:06.050 --> 00:01:08.430
So velocity, and
there's many ways

00:01:08.430 --> 00:01:11.060
that you might see it defined,
but velocity, once again,

00:01:11.060 --> 00:01:12.690
is a vector quantity.

00:01:12.690 --> 00:01:15.230
And the way that we
differentiate between vector

00:01:15.230 --> 00:01:17.310
and scalar quantities
is we put little arrows

00:01:17.310 --> 00:01:19.080
on top of vector quantities.

00:01:19.080 --> 00:01:21.557
Normally they are bolded,
if you can have a typeface,

00:01:21.557 --> 00:01:23.140
and they have an
arrow on top of them.

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But this tells you
that not only do I

00:01:24.681 --> 00:01:26.760
care about the
value of this thing,

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or I care about the
size of this thing,

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I also care about its direction.

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That's what the arrow.

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The arrow isn't
necessarily its direction,

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it just tells you that
it is a vector quantity.

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So the velocity of something
is its change in position,

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including the direction
of its change in position.

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So you could say
its displacement,

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and the letter for
displacement is

00:01:51.910 --> 00:01:54.050
S. And that is a
vector quantity,

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so that is displacement.

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And you might be
wondering, why don't they

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use D for displacement?

00:02:00.850 --> 00:02:04.050
That seems like a much
more natural first letter.

00:02:04.050 --> 00:02:06.980
And my best sense of that is,
once you start doing calculus,

00:02:06.980 --> 00:02:10.039
you start using D for
something very different.

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You use it for the
derivative operator,

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and that's so that the
D's don't get confused.

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And that's why we use
S for displacement.

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If someone has a better
explanation of that,

00:02:18.810 --> 00:02:21.920
feel free to comment
on this video,

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and then I'll add another
video explaining that better

00:02:24.330 --> 00:02:25.670
explanation.

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So velocity is your
displacement over time.

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If I wanted to write an
analogous thing for the scalar

00:02:36.040 --> 00:02:39.650
quantities, I could
write that speed,

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and I'll write
out the word so we

00:02:41.250 --> 00:02:43.150
don't get confused
with displacement.

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Or maybe I'll write "rate."

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Rate is another way that
sometimes people write speed.

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So this is the vector version,
if you care about direction.

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If you don't care
about direction,

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you would have your rate.

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So this is rate, or speed,
is equal to the distance

00:03:00.730 --> 00:03:06.370
that you travel over some time.

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So these two, you could
call them formulas, or you

00:03:08.910 --> 00:03:10.560
could call them
definitions, although I

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would think that they're
pretty intuitive for you.

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How fast something is
going, you say, how far

00:03:14.830 --> 00:03:16.937
did it go over some
period of time.

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These are essentially
saying the same thing.

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This is when you
care about direction,

00:03:20.552 --> 00:03:22.260
so you're dealing with
vector quantities.

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This is where you're not so
conscientious about direction.

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And so you use distance,
which is scalar,

00:03:27.050 --> 00:03:28.940
and you use rate or
speed, which is scalar.

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Here you use displacement,
and you use velocity.

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Now with that out of the
way, let's figure out

00:03:33.750 --> 00:03:36.080
what his average velocity was.

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And this key word,
average, is interesting.

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Because it's possible that
his velocity was changing

00:03:41.670 --> 00:03:43.500
over that whole time period.

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But for the sake of
simplicity, we're

00:03:45.147 --> 00:03:47.480
going to assume that it was
kind of a constant velocity.

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What we are calculating is going
to be his average velocity.

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But don't worry about
it, you can just

00:03:52.053 --> 00:03:54.930
assume that it wasn't changing
over that time period.

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So his velocity is,
his displacement

00:03:59.250 --> 00:04:08.590
was 5 kilometers to the north--
I'll write just a big capital.

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Well, let me just write it
out, 5 kilometers north--

00:04:12.680 --> 00:04:16.699
over the amount of
time it took him.

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And let me make it clear.

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This is change in time.

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This is also a change in time.

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Sometimes you'll just
see a t written there.

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Sometimes you'll see
someone actually put

00:04:29.660 --> 00:04:32.360
this little triangle,
the character delta,

00:04:32.360 --> 00:04:35.200
in front of it, which
explicitly means "change in."

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It looks like a very fancy
mathematics when you see that,

00:04:38.030 --> 00:04:39.750
but a triangle in
front of something

00:04:39.750 --> 00:04:43.170
literally means "change in."

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So this is change in time.

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So he goes 5 kilometers
north, and it took him 1 hour.

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So the change in
time was 1 hour.

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So let me write that over here.

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So over 1 hour.

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So this is equal
to, if you just look

00:04:58.050 --> 00:05:01.290
at the numerical
part of it, it is

00:05:01.290 --> 00:05:07.910
5/1-- let me just write
it out, 5/1-- kilometers,

00:05:07.910 --> 00:05:09.820
and you can treat the
units the same way

00:05:09.820 --> 00:05:11.700
you would treat the
quantities in a fraction.

00:05:11.700 --> 00:05:22.390
5/1 kilometers per hour,
and then to the north.

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Or you could say this
is the same thing

00:05:27.530 --> 00:05:30.456
as 5 kilometers per hour north.

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So this is 5 kilometers
per hour to the north.

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So that's his average velocity,
5 kilometers per hour.

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And you have to be careful,
you have to say "to the north"

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if you want velocity.

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If someone just said "5
kilometers per hour,"

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they're giving you a speed,
or rate, or a scalar quantity.

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You have to give the direction
for it to be a vector quantity.

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You could do the same
thing if someone just said,

00:06:01.880 --> 00:06:05.180
what was his average
speed over that time?

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You could have said, well, his
average speed, or his rate,

00:06:08.350 --> 00:06:10.520
would be the
distance he travels.

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The distance, we don't care
about the direction now,

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is 5 kilometers, and
he does it in 1 hour.

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His change in time is 1 hour.

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So this is the same thing
as 5 kilometers per hour.

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So once again, we're only
giving the magnitude here.

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This is a scalar quantity.

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If you want the vector, you
have to do the north as well.

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Now, you might be saying,
hey, in the previous video,

00:06:38.830 --> 00:06:41.370
we talked about things in
terms of meters per second.

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Here, I give you kilometers,
or "kil-om-eters,"

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depending on how you
want to pronounce it,

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kilometers per hour.

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What if someone wanted
it in meters per second,

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or what if I just wanted to
understand how many meters he

00:06:52.120 --> 00:06:53.690
travels in a second?

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And there, it just becomes
a unit conversion problem.

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And I figure it doesn't hurt
to work on that right now.

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So if we wanted to do
this to meters per second,

00:07:01.360 --> 00:07:02.850
how would we do it?

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Well, the first step is to
think about how many meters we

00:07:05.590 --> 00:07:07.330
are traveling in an hour.

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So let's take that 5
kilometers per hour,

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and we want to
convert it to meters.

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So I put meters
in the numerator,

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and I put kilometers
in the denominator.

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And the reason why I do that
is because the kilometers

00:07:20.500 --> 00:07:22.333
are going to cancel out
with the kilometers.

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And how many meters are
there per kilometer?

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Well, there's 1,000 meters
for every 1 kilometer.

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And I set this up right here so
that the kilometers cancel out.

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So these two
characters cancel out.

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And if you multiply,
you get 5,000.

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So you have 5 times 1,000.

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So let me write this-- I'll do
it in the same color-- 5 times

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1,000.

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So I just multiplied
the numbers.

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When you multiply something,
you can switch around the order.

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Multiplication is
commutative-- I always

00:08:01.200 --> 00:08:03.470
have trouble pronouncing
that-- and associative.

00:08:03.470 --> 00:08:06.930
And then in the units, in the
numerator, you have meters,

00:08:06.930 --> 00:08:10.800
and in the denominator,
you have hours.

00:08:10.800 --> 00:08:13.680
Meters per hour.

00:08:13.680 --> 00:08:23.010
And so this is equal to
5,000 meters per hour.

00:08:23.010 --> 00:08:25.300
And you might say,
hey, Sal, I know

00:08:25.300 --> 00:08:28.220
that 5 kilometers is the
same thing as 5,000 meters.

00:08:28.220 --> 00:08:29.880
I could do that in my head.

00:08:29.880 --> 00:08:31.320
And you probably could.

00:08:31.320 --> 00:08:33.780
But this canceling out
dimensions, or what's

00:08:33.780 --> 00:08:35.770
often called
dimensional analysis,

00:08:35.770 --> 00:08:38.030
can get useful once you
start doing really, really

00:08:38.030 --> 00:08:41.039
complicated things with less
intuitive units than something

00:08:41.039 --> 00:08:41.720
like this.

00:08:41.720 --> 00:08:44.960
But you should always do an
intuitive gut check right here.

00:08:44.960 --> 00:08:47.180
You know that if you do
5 kilometers in an hour,

00:08:47.180 --> 00:08:48.800
that's a ton of meters.

00:08:48.800 --> 00:08:50.830
So you should get
a larger number

00:08:50.830 --> 00:08:52.910
if you're talking
about meters per hour.

00:08:52.910 --> 00:08:54.770
And now when we want
to go to seconds,

00:08:54.770 --> 00:08:56.530
let's do an intuitive gut check.

00:08:56.530 --> 00:08:59.540
If something is traveling a
certain amount in an hour,

00:08:59.540 --> 00:09:02.390
it should travel a much
smaller amount in a second,

00:09:02.390 --> 00:09:06.450
or 1/3,600 of an hour, because
that's how many seconds there

00:09:06.450 --> 00:09:08.469
are in an hour.

00:09:08.469 --> 00:09:09.510
So that's your gut check.

00:09:09.510 --> 00:09:11.176
We should get a smaller
number than this

00:09:11.176 --> 00:09:13.130
when we want to say
meters per second.

00:09:13.130 --> 00:09:16.020
But let's actually do it with
the dimensional analysis.

00:09:16.020 --> 00:09:17.830
So we want to cancel
out the hours,

00:09:17.830 --> 00:09:20.460
and we want to be left with
seconds in the denominator.

00:09:20.460 --> 00:09:22.790
So the best way to cancel
this hours in the denominator

00:09:22.790 --> 00:09:27.640
is by having hours
in the numerator.

00:09:27.640 --> 00:09:31.810
So you have hours per second.

00:09:31.810 --> 00:09:34.380
So how many hours
are there per second?

00:09:34.380 --> 00:09:36.260
Or another way to
think about it, 1 hour,

00:09:36.260 --> 00:09:39.670
think about the larger unit,
1 hour is how many seconds?

00:09:39.670 --> 00:09:47.100
Well, you have 60 seconds
per minute times 60 minutes

00:09:47.100 --> 00:09:51.730
per hour.

00:09:54.710 --> 00:09:56.090
The minutes cancel out.

00:09:56.090 --> 00:10:00.510
60 times 60 is 3,600
seconds per hour.

00:10:05.860 --> 00:10:09.310
So you could say this is 3,600
seconds for every 1 hour,

00:10:09.310 --> 00:10:16.307
or if you flip them, you would
get 1/3,600 hour per second,

00:10:16.307 --> 00:10:18.640
or hours per second, depending
on how you want to do it.

00:10:18.640 --> 00:10:25.130
So 1 hour is the same
thing as 3,600 seconds.

00:10:25.130 --> 00:10:28.000
And so now this hour
cancels out with that hour,

00:10:28.000 --> 00:10:30.870
and then you multiply,
or appropriately divide,

00:10:30.870 --> 00:10:32.390
the numbers right here.

00:10:32.390 --> 00:10:43.800
And you get this is equal
to 5,000 over 3,600 meters

00:10:43.800 --> 00:10:47.380
per-- all you have left in the
denominator here is second.

00:10:47.380 --> 00:10:50.590
Meters per second.

00:10:50.590 --> 00:10:53.930
And if we divide both the
numerator and the denominator--

00:10:53.930 --> 00:10:56.220
I could do this by hand, but
just because this video's

00:10:56.220 --> 00:10:57.750
already getting a
little bit long,

00:10:57.750 --> 00:11:00.990
let me get my trusty
calculator out.

00:11:00.990 --> 00:11:05.470
I get my trusty calculator
out just for the sake of time.

00:11:05.470 --> 00:11:09.280
5,000 divided by 3,600, which
would be really the same thing

00:11:09.280 --> 00:11:13.410
as 50 divided by
36, that is 1.3--

00:11:13.410 --> 00:11:17.300
I'll just round it
over here-- 1.39.

00:11:17.300 --> 00:11:33.440
So this is equal to
1.39 meters per second.

00:11:33.440 --> 00:11:35.459
So Shantanu was traveling
quite slow in his car.

00:11:35.459 --> 00:11:37.250
Well, we knew that just
by looking at this.

00:11:37.250 --> 00:11:39.570
5 kilometers per hour, that's
pretty much just letting

00:11:39.570 --> 00:11:44.480
the car roll pretty slowly.


Intro to vectors & scalars

WEBVTT
Kind: captions
Language: en

00:00:00.324 --> 00:00:01.740
What I want to do
in this video is

00:00:01.740 --> 00:00:08.380
talk about the difference
between vectors and scalars.

00:00:08.380 --> 00:00:11.259
And they might sound like
very complicated ideas,

00:00:11.259 --> 00:00:13.050
but we'll see over the
course of the videos

00:00:13.050 --> 00:00:15.874
that they're actually
very simple ideas.

00:00:15.874 --> 00:00:18.040
So first I'll give you a
little bit of a definition.

00:00:18.040 --> 00:00:20.250
And then I'll give you
a bunch of examples,

00:00:20.250 --> 00:00:22.780
and I think the examples
will make things super clear.

00:00:22.780 --> 00:00:25.030
Hopefully, they'll make
things super clear.

00:00:25.030 --> 00:00:30.040
A vector is something
that has a magnitude,

00:00:30.040 --> 00:00:32.270
or you could kind of
view that as a size,

00:00:32.270 --> 00:00:34.290
and it has a direction.

00:00:34.290 --> 00:00:38.065
So "and" it has a direction.

00:00:41.330 --> 00:00:45.380
A scalar only has a
magnitude, or size.

00:00:45.380 --> 00:00:47.550
And if that doesn't
make sense to you,

00:00:47.550 --> 00:00:49.070
it will hopefully
make sense to you

00:00:49.070 --> 00:00:51.910
in a second when I
show you an example.

00:00:51.910 --> 00:00:52.830
For example.

00:00:52.830 --> 00:00:56.160
Let's say that I have,
let's say that that's

00:00:56.160 --> 00:00:58.020
the ground-- let me do
the ground in a more

00:00:58.020 --> 00:01:00.640
appropriate ground-like color.

00:01:00.640 --> 00:01:03.970
So this is green
right over here.

00:01:03.970 --> 00:01:07.440
And let's say that
I have a brick here.

00:01:07.440 --> 00:01:10.940
I have a brick on the ground.

00:01:10.940 --> 00:01:15.670
And I pick up that
brick, and I move it over

00:01:15.670 --> 00:01:18.370
to this place right over here.

00:01:18.370 --> 00:01:21.390
So I move the brick
right over there.

00:01:21.390 --> 00:01:23.610
And then I take a ruler
out, and I say, wow,

00:01:23.610 --> 00:01:28.305
I've moved the brick 5 meters.

00:01:32.600 --> 00:01:37.190
So my question to you, is
my measurement of 5 meters,

00:01:37.190 --> 00:01:39.520
is it a vector or a scalar?

00:01:39.520 --> 00:01:42.150
Well, if I just
tell you 5 meters,

00:01:42.150 --> 00:01:44.580
you just know the
size of the movement.

00:01:44.580 --> 00:01:47.480
You just know the
magnitude of the movement.

00:01:47.480 --> 00:01:52.050
So if someone were
to just say 5 meters,

00:01:52.050 --> 00:01:55.670
this is a scalar quantity.

00:01:55.670 --> 00:01:58.400
And when we're referring
to moving something,

00:01:58.400 --> 00:02:02.380
or how much something has, I
guess, changed its position,

00:02:02.380 --> 00:02:03.980
and I don't give
you the direction,

00:02:03.980 --> 00:02:05.790
we're talking about distance.

00:02:05.790 --> 00:02:08.889
And I'm assuming you've
heard the word distance.

00:02:08.889 --> 00:02:10.900
How far of a distance
has something traveled?

00:02:10.900 --> 00:02:13.890
So this is distance.

00:02:13.890 --> 00:02:16.490
So we could say that this
block, or this brick,

00:02:16.490 --> 00:02:18.380
because of my picking
it up and moving it,

00:02:18.380 --> 00:02:20.589
has moved a distance
of 5 meters.

00:02:20.589 --> 00:02:22.380
But if I didn't show
you this picture here,

00:02:22.380 --> 00:02:23.754
and someone just
told you that it

00:02:23.754 --> 00:02:25.830
moved a distance
of 5 meters, you

00:02:25.830 --> 00:02:27.830
wouldn't know if it moved
to the right 5 meters,

00:02:27.830 --> 00:02:29.955
you wouldn't know if it
moved to the left 5 meters,

00:02:29.955 --> 00:02:31.600
if it moved up or
down or in or out,

00:02:31.600 --> 00:02:33.808
or-- You don't know what
direction it moved 5 meters.

00:02:33.808 --> 00:02:36.210
You just know it moved 5 meters.

00:02:36.210 --> 00:02:38.070
If you want to
specify that, so, we

00:02:38.070 --> 00:02:40.490
could say that this
brick right over here,

00:02:40.490 --> 00:02:49.285
that it moved 5
meters to the left.

00:02:53.440 --> 00:02:58.140
Now we have specified a
magnitude, right over there.

00:02:58.140 --> 00:02:59.990
So that is a magnitude.

00:02:59.990 --> 00:03:04.360
And we have specified a
direction, to the left.

00:03:04.360 --> 00:03:08.590
So you now explicitly know that
they went 5 meters to the-- oh,

00:03:08.590 --> 00:03:09.140
sorry.

00:03:09.140 --> 00:03:10.830
It should be 5
meters to the right.

00:03:10.830 --> 00:03:12.150
Let me change that.

00:03:12.150 --> 00:03:19.990
So, 5 meters to the right
is what it got moved.

00:03:19.990 --> 00:03:23.250
It started here and went
5 meters to the right.

00:03:23.250 --> 00:03:27.740
So once again, the
magnitude is 5 meters,

00:03:27.740 --> 00:03:31.520
and the direction
is to the right.

00:03:31.520 --> 00:03:33.670
So what I've just
described to you right here

00:03:33.670 --> 00:03:35.580
is a vector quantity.

00:03:35.580 --> 00:03:37.770
So this, all of this
business right over here,

00:03:37.770 --> 00:03:38.941
this is a vector.

00:03:38.941 --> 00:03:40.940
And when you talk about
the movement, the change

00:03:40.940 --> 00:03:44.030
in position, and you give its
direction, the vector version

00:03:44.030 --> 00:03:47.960
of distance, I guess you could
call it, is displacement.

00:03:47.960 --> 00:03:50.223
So this right here
is displacement.

00:03:53.390 --> 00:03:55.640
So the correct thing
to say, you would

00:03:55.640 --> 00:03:58.950
say that this brick
has been displaced

00:03:58.950 --> 00:04:02.420
5 meters to the
right, or it has been

00:04:02.420 --> 00:04:04.990
moved a distance of 5 meters.

00:04:04.990 --> 00:04:07.820
Distance is a scalar
quantity-- I didn't tell you

00:04:07.820 --> 00:04:09.430
what direction we moved it in.

00:04:09.430 --> 00:04:11.870
Displacement is a
vector quantity.

00:04:11.870 --> 00:04:15.430
We told you that
it is to the right.

00:04:15.430 --> 00:04:18.390
Now let's explore this if
we talk about the actual,

00:04:18.390 --> 00:04:22.740
well, we'll talk about the
speed or velocity of something.

00:04:22.740 --> 00:04:28.290
So let's say that this
5 meters was traveled

00:04:28.290 --> 00:04:33.684
and let's say that
the change in time--

00:04:33.684 --> 00:04:35.350
let me just, because
you're probably not

00:04:35.350 --> 00:04:36.599
familiar with what that means.

00:04:36.599 --> 00:04:41.390
So let's say that the
change in time right here,

00:04:41.390 --> 00:04:44.920
when I moved this
block 5 meters,

00:04:44.920 --> 00:04:47.100
let's say that it
was, I don't know,

00:04:47.100 --> 00:04:51.420
let's say that the change
in time was 2 seconds.

00:04:51.420 --> 00:04:54.190
So maybe right when the
block started moving, maybe

00:04:54.190 --> 00:04:56.400
on my stopwatch it said 0.

00:04:56.400 --> 00:04:59.340
And then on my stopwatch
when it stopped moving,

00:04:59.340 --> 00:05:01.210
it said, or when it
got to this position,

00:05:01.210 --> 00:05:03.168
I should say-- when it
left from this position,

00:05:03.168 --> 00:05:04.580
my stopwatch said 0.

00:05:04.580 --> 00:05:08.000
When it got to this position
my stopwatch said 2 seconds.

00:05:08.000 --> 00:05:10.800
So the change in time, or the
duration we're dealing with,

00:05:10.800 --> 00:05:12.446
is 2 seconds.

00:05:12.446 --> 00:05:14.070
And this is, for all
we know, time only

00:05:14.070 --> 00:05:16.550
goes in the positive direction.

00:05:16.550 --> 00:05:18.159
So you could assume
that it's, you

00:05:18.159 --> 00:05:20.200
could pick that as a vector
or a scalar quantity,

00:05:20.200 --> 00:05:22.740
I guess, because there's
only one direction for time,

00:05:22.740 --> 00:05:26.320
as far as we know, or
at least in what we're

00:05:26.320 --> 00:05:29.070
going to deal with for
the simple physics.

00:05:29.070 --> 00:05:34.000
So what is a measure of
how fast this thing moved?

00:05:34.000 --> 00:05:37.320
So, how fast did
this thing move?

00:05:37.320 --> 00:05:41.430
So we could say it moved
5 meters in 2 seconds.

00:05:41.430 --> 00:05:42.460
Let me write this down.

00:05:42.460 --> 00:05:49.310
So it moved 5 meters
per 2 seconds.

00:05:54.000 --> 00:05:58.820
Or we could write this as
5/2 of a meter per second.

00:05:58.820 --> 00:06:02.180
Or 5 divided by 2 is what?

00:06:02.180 --> 00:06:07.230
5 divided by 2 is 2.5
meters per second.

00:06:13.830 --> 00:06:16.430
This right here is just
the 5 divided by 2,

00:06:16.430 --> 00:06:17.910
let me make that clear.

00:06:17.910 --> 00:06:23.230
That right there is just
the 5 divided by the 2.

00:06:23.230 --> 00:06:24.300
So my question to you.

00:06:24.300 --> 00:06:26.450
This 2.5 meters per
second tells you

00:06:26.450 --> 00:06:29.550
how far it traveled in a
certain amount of time.

00:06:29.550 --> 00:06:31.782
Is this a vector or
a scalar quantity?

00:06:31.782 --> 00:06:33.240
It is telling you
how fast it went,

00:06:33.240 --> 00:06:38.250
but is it giving you just
a size of how fast it went?

00:06:38.250 --> 00:06:40.090
Or is it also giving
you direction?

00:06:40.090 --> 00:06:41.730
Well, I don't see
any direction here.

00:06:41.730 --> 00:06:43.700
So this is a scalar quantity.

00:06:43.700 --> 00:06:48.470
And the scalar quantity for
how fast something is going

00:06:48.470 --> 00:06:49.920
is speed.

00:06:49.920 --> 00:06:52.100
So we could say that
the speed of the brick

00:06:52.100 --> 00:06:56.162
is 2.5 meters per second.

00:06:56.162 --> 00:06:57.620
Now, if we do the
same calculation,

00:06:57.620 --> 00:07:02.290
and we say it went
5 meters-- I'll just

00:07:02.290 --> 00:07:13.500
write m for meters-- to the
right in 2 seconds, then

00:07:13.500 --> 00:07:14.660
what do we get?

00:07:14.660 --> 00:07:19.860
We get 2.5, once again, 2.5
meters per second-- I'll

00:07:19.860 --> 00:07:26.005
just abbreviate them as meters
per second-- to the right.

00:07:31.170 --> 00:07:33.220
So is this a vector
or a scalar quantity?

00:07:33.220 --> 00:07:37.840
I'm telling you the magnitude
of the speed, that's right here.

00:07:37.840 --> 00:07:41.170
This is the magnitude,
2.5 meters per second.

00:07:41.170 --> 00:07:44.760
And I'm also telling you
the direction, to the right.

00:07:44.760 --> 00:07:46.910
So this is a vector quantity.

00:07:46.910 --> 00:07:48.650
This is a vector quantity.

00:07:48.650 --> 00:07:52.000
And when you specify both
the speed and the direction,

00:07:52.000 --> 00:07:55.080
so the 2.5 meters per second
is a scalar, and the direction,

00:07:55.080 --> 00:07:57.970
you are talking about velocity.

00:07:57.970 --> 00:08:01.510
You are talking about velocity.

00:08:01.510 --> 00:08:03.140
So an easy way to
think about it,

00:08:03.140 --> 00:08:05.300
if you're thinking
about change in position

00:08:05.300 --> 00:08:07.750
and you specify the direction
of the change in position,

00:08:07.750 --> 00:08:09.660
you're talking
about displacement.

00:08:09.660 --> 00:08:11.620
If you're not talking
about the direction,

00:08:11.620 --> 00:08:14.370
you want the scalar version,
you're talking about distance.

00:08:14.370 --> 00:08:16.920
If you're talking about how
fast something is going,

00:08:16.920 --> 00:08:19.420
and you give the direction
that it's going in,

00:08:19.420 --> 00:08:21.170
you're talking about velocity.

00:08:21.170 --> 00:08:26.077
If you don't give the direction
you are talking about speed.

00:08:26.077 --> 00:08:27.660
Hopefully that helps
you a little bit.

00:08:27.660 --> 00:08:28.670
In the next video,
we're going start

00:08:28.670 --> 00:08:30.336
working with these a
little bit to start

00:08:30.336 --> 00:08:33.809
solving some basic questions
about how fast something

00:08:33.809 --> 00:08:35.460
is going, or how
far it might travel,

00:08:35.460 --> 00:08:38.760
or how long it might
take it to get someplace.


Development of agriculture and writing

WEBVTT
Kind: captions
Language: en

00:00:00.550 --> 00:00:06.280
In this video, I'm going to
use words like eras, periods,

00:00:06.280 --> 00:00:11.270
and ages to refer to
segments of time in the human

00:00:11.270 --> 00:00:13.190
or in the pre-human past.

00:00:13.190 --> 00:00:15.330
And what I want to clarify
right from the get-go--

00:00:15.330 --> 00:00:16.746
because frankly,
this is something

00:00:16.746 --> 00:00:19.720
that's confused me in the past--
is that archaeologists will

00:00:19.720 --> 00:00:22.429
refer to eras, periods,
and ages in the human past

00:00:22.429 --> 00:00:24.970
and they're usually referring
to periods of tens of thousands

00:00:24.970 --> 00:00:26.810
of years, or thousands of years.

00:00:26.810 --> 00:00:30.320
But these are different eras,
periods, and ages than the ones

00:00:30.320 --> 00:00:32.369
that geologists would
refer to when they're

00:00:32.369 --> 00:00:34.300
talking about geological time.

00:00:34.300 --> 00:00:37.750
In geological time, era means
several hundred millions

00:00:37.750 --> 00:00:38.250
of years.

00:00:38.250 --> 00:00:41.010
Periods and ages mean
millions of years.

00:00:41.010 --> 00:00:42.460
When an archaeologist,
when we're

00:00:42.460 --> 00:00:45.510
studying the human past,
this is just talking--

00:00:45.510 --> 00:00:48.600
they're just generally
talking about long segments

00:00:48.600 --> 00:00:50.720
of human time, but not
in the millions of years,

00:00:50.720 --> 00:00:55.015
usually in the thousands or
the ten thousands of years.

00:00:55.015 --> 00:00:56.890
So what I want to do
with that out of the way

00:00:56.890 --> 00:01:01.150
is talk about what has happened
in the distant human past,

00:01:01.150 --> 00:01:02.900
or the distant
pre-human past, and also

00:01:02.900 --> 00:01:05.620
touch on some of
the classifications

00:01:05.620 --> 00:01:08.430
for these segments of time--
because they actually tell us

00:01:08.430 --> 00:01:10.780
what were the interesting
developments that happened

00:01:10.780 --> 00:01:16.910
to humanity over
the 200,000 years

00:01:16.910 --> 00:01:19.600
that Homo sapiens have
been on this planet,

00:01:19.600 --> 00:01:22.790
or that we believe
that Homo sapiens have

00:01:22.790 --> 00:01:25.610
been on this planet.

00:01:25.610 --> 00:01:28.210
So the longest period
of time in human past,

00:01:28.210 --> 00:01:30.340
or the category of
human time-- and there

00:01:30.340 --> 00:01:31.881
are different ways
you can categorize

00:01:31.881 --> 00:01:34.040
it-- is the Paleolithic
Era right over here.

00:01:40.320 --> 00:01:43.360
And what really makes
that period of time--

00:01:43.360 --> 00:01:46.910
so this begins even in
prehistory or pre-human

00:01:46.910 --> 00:01:49.620
history, so before
Homo sapiens even

00:01:49.620 --> 00:01:52.370
existed-- you have the
beginning of the Paleolithic Era

00:01:52.370 --> 00:01:55.480
that really began with the
development of stone tools.

00:01:55.480 --> 00:01:58.000
And as we learned in the
video on human evolution,

00:01:58.000 --> 00:02:00.490
there were pre Homo
sapiens species

00:02:00.490 --> 00:02:02.760
that were using stone tools.

00:02:02.760 --> 00:02:05.280
And so the Paleolithic
Era, it's really

00:02:05.280 --> 00:02:08.949
kind of signified by one, the
stone tools, but even more--

00:02:08.949 --> 00:02:11.660
that either the
pre-humans-- or once

00:02:11.660 --> 00:02:14.520
you go about 200,000 years
ago-- the humans show up.

00:02:14.520 --> 00:02:16.320
It's kind of
distinguished by humans

00:02:16.320 --> 00:02:22.640
being hunter-gatherers, which
essentially means to survive,

00:02:22.640 --> 00:02:24.030
we used to walk around a lot.

00:02:24.030 --> 00:02:29.385
If we couldn't see something
obvious to hunt, maybe

00:02:29.385 --> 00:02:31.760
a woolly mammoth or something,
if we didn't see something

00:02:31.760 --> 00:02:33.590
obvious to hunt, we
would look around

00:02:33.590 --> 00:02:35.750
for snails, or mushrooms,
or whatever else.

00:02:35.750 --> 00:02:37.130
And that's how we would survive.

00:02:37.130 --> 00:02:38.500
That's how we would live.

00:02:38.500 --> 00:02:42.980
And because we were constantly
adapting to our environment

00:02:42.980 --> 00:02:45.800
based on the seasons, we
were maybe following animals

00:02:45.800 --> 00:02:48.420
as they migrated,
hunter-gatherers

00:02:48.420 --> 00:02:52.610
were fundamentally nomadic,
which means that they never

00:02:52.610 --> 00:02:54.600
settled in one place
for a long time.

00:02:54.600 --> 00:02:57.700
They were always ready to pick
up-- probably their tents--

00:02:57.700 --> 00:03:00.460
and follow the herd, or follow
whatever animals they were

00:03:00.460 --> 00:03:04.712
hunting, or follow
the season, so they

00:03:04.712 --> 00:03:06.170
could go to warmer
climates, maybe,

00:03:06.170 --> 00:03:09.910
where they're more likely to
find something on the ground

00:03:09.910 --> 00:03:11.350
to eat, maybe,
during the winter.

00:03:11.350 --> 00:03:12.820
Or who knows.

00:03:12.820 --> 00:03:15.610
So the Paleolithic Era is
really distinguished by that.

00:03:15.610 --> 00:03:19.720
It's a huge swath of
time in human history.

00:03:19.720 --> 00:03:22.530
And it doesn't come
to an end until you

00:03:22.530 --> 00:03:25.300
get to the advent of farming.

00:03:25.300 --> 00:03:27.580
So the Paleolithic Era,
I mean, we're literally

00:03:27.580 --> 00:03:29.700
talking about over
two million years ago

00:03:29.700 --> 00:03:31.660
was when it starts--
before Homo sapiens even

00:03:31.660 --> 00:03:33.390
existed as a species.

00:03:33.390 --> 00:03:36.330
And it goes all the way
to the advent of farming,

00:03:36.330 --> 00:03:40.010
that we believe first
came about around 11,000

00:03:40.010 --> 00:03:42.930
to 7,000 years ago.

00:03:42.930 --> 00:03:45.910
And this abbreviation
right here, this BP,

00:03:45.910 --> 00:03:47.770
this does not stand
for British Petroleum.

00:03:47.770 --> 00:03:52.030
It stands for Before Present,
or before the present time.

00:03:52.030 --> 00:03:54.090
So one more acronym
to have in your tool

00:03:54.090 --> 00:03:55.640
kit when you see things.

00:03:55.640 --> 00:03:59.460
And obviously, if we're 11,000
years before the present,

00:03:59.460 --> 00:04:03.120
that's the same thing as
9,000 years Before Christ,

00:04:03.120 --> 00:04:05.040
or Before the Common Era.

00:04:05.040 --> 00:04:11.100
Because Christ was, we
believe, born 2,000 years ago.

00:04:11.100 --> 00:04:13.810
Now, it may or may
not be obvious to you,

00:04:13.810 --> 00:04:18.790
but the advent of agriculture
is a super big deal, arguably

00:04:18.790 --> 00:04:20.870
the biggest deal
in the development

00:04:20.870 --> 00:04:24.385
of human civilization, or
in all of human history.

00:04:24.385 --> 00:04:25.760
And you might say,
hey, you know,

00:04:25.760 --> 00:04:27.350
what's the big deal
about agriculture?

00:04:27.350 --> 00:04:30.310
These characters over
here look pretty happy.

00:04:30.310 --> 00:04:32.260
They're able to
walk around a lot.

00:04:32.260 --> 00:04:34.020
They're able to hunt.

00:04:34.020 --> 00:04:36.430
What's the big deal of
all of a sudden people

00:04:36.430 --> 00:04:39.610
plowing fields, and
domesticating cattle,

00:04:39.610 --> 00:04:42.440
and having chickens to lay
eggs, and whatever else?

00:04:42.440 --> 00:04:45.140
And the big deal about that--
besides the fact that it would

00:04:45.140 --> 00:04:47.860
change people's diet-- is
that for the first time,

00:04:47.860 --> 00:04:50.620
it allowed them
to not be nomadic.

00:04:50.620 --> 00:04:52.760
It allowed them to-- and
you could have probably

00:04:52.760 --> 00:04:56.220
had some hunters who were
somewhat settled, maybe living

00:04:56.220 --> 00:04:56.860
near the ocean.

00:04:56.860 --> 00:04:59.030
Maybe they did some
fishing, and all the rest.

00:04:59.030 --> 00:05:02.480
But for the most part, with
the development of agriculture,

00:05:02.480 --> 00:05:05.690
it forced people to
stay in one place.

00:05:05.690 --> 00:05:10.570
So you have the Paleolithic
Era all the way to the advent

00:05:10.570 --> 00:05:14.520
of agriculture, which was about
11,000 to 7,000 years ago.

00:05:14.520 --> 00:05:17.750
And besides the fact that
it changed people's diet,

00:05:17.750 --> 00:05:19.310
it allowed them to settle.

00:05:19.310 --> 00:05:24.340
So agriculture
allowed human beings

00:05:24.340 --> 00:05:26.100
to settle down in one area.

00:05:26.100 --> 00:05:28.590
And it wasn't just that they
were settling in one area,

00:05:28.590 --> 00:05:31.500
but because they were able to
control their environment, they

00:05:31.500 --> 00:05:33.920
were able to increase
the density of things,

00:05:33.920 --> 00:05:36.390
of crops that humans
could consume,

00:05:36.390 --> 00:05:38.680
and animals that humans
could consume-- and lower

00:05:38.680 --> 00:05:41.070
the density of crops that
humans can't consume,

00:05:41.070 --> 00:05:44.400
and animals that
they can't consume,

00:05:44.400 --> 00:05:47.390
or that they don't want around,
like pests of some type.

00:05:47.390 --> 00:05:48.970
What it allowed
them to do is also

00:05:48.970 --> 00:05:52.250
settle in more
dense environments.

00:05:52.250 --> 00:05:54.680
You can imagine when you just
have people walking around,

00:05:54.680 --> 00:05:56.650
you need a lot of
land to support

00:05:56.650 --> 00:05:59.330
even the calorie requirements
of one human being.

00:05:59.330 --> 00:06:01.945
But all of a sudden, if you are
able to develop agriculture,

00:06:01.945 --> 00:06:04.610
you're able to
domesticate animals.

00:06:04.610 --> 00:06:07.150
All of a sudden you could have--
in the same amount of land,

00:06:07.150 --> 00:06:09.717
you could have more
calories being generated.

00:06:09.717 --> 00:06:11.800
And because you have more
calories being generated

00:06:11.800 --> 00:06:15.130
in a smaller amount of
land, people can settle.

00:06:15.130 --> 00:06:17.440
And they can settle in
a denser environment.

00:06:17.440 --> 00:06:20.830
And so agriculture was really
this necessary requirement

00:06:20.830 --> 00:06:24.300
for people to
develop civilization,

00:06:24.300 --> 00:06:30.030
or to develop
villages and cities.

00:06:30.030 --> 00:06:32.420
And maybe also giving
them the free time

00:06:32.420 --> 00:06:34.000
to start thinking
about hey, maybe we

00:06:34.000 --> 00:06:36.800
want to think about how we
can record what we know,

00:06:36.800 --> 00:06:40.410
how we can develop
even more technologies.

00:06:40.410 --> 00:06:42.740
And so just to give us a
sense of the categorization

00:06:42.740 --> 00:06:45.220
that an archaeologist would
use for these different periods

00:06:45.220 --> 00:06:47.303
of time-- I told you we
start with the Paleolithic

00:06:47.303 --> 00:06:49.370
Era, with the advent
of stone tools,

00:06:49.370 --> 00:06:54.200
pre-humans-- most of
human time on this planet.

00:06:54.200 --> 00:06:57.480
And then about 11,000 years ago,
the development of agriculture.

00:06:57.480 --> 00:06:59.590
And it developed independently
at different places

00:06:59.590 --> 00:07:00.890
around the world,
which is by itself

00:07:00.890 --> 00:07:02.060
an interesting phenomenon.

00:07:02.060 --> 00:07:04.634
And people think that it might
just be that be the climate

00:07:04.634 --> 00:07:06.050
might have warmed
up a little bit,

00:07:06.050 --> 00:07:07.633
so that people--
maybe naturally there

00:07:07.633 --> 00:07:09.860
were some human
edible crops that

00:07:09.860 --> 00:07:11.860
existed in a little bit
of a denser environment,

00:07:11.860 --> 00:07:14.040
and humans learned to
optimize that slowly,

00:07:14.040 --> 00:07:15.540
and they did that independently.

00:07:15.540 --> 00:07:17.360
But it's an interesting
question of why

00:07:17.360 --> 00:07:22.130
did it develop just then
after 180,000, 190,000 years,

00:07:22.130 --> 00:07:24.486
why did agriculture
all of a sudden happen?

00:07:24.486 --> 00:07:25.860
But just to get
the terminology--

00:07:25.860 --> 00:07:29.440
the Paleolithic Era is that
period before agriculture.

00:07:29.440 --> 00:07:31.910
And then once agriculture
starts developing,

00:07:31.910 --> 00:07:36.740
we are now in the Neolithic Era.

00:07:36.740 --> 00:07:39.990
And some archaeologists will
describe a transition period

00:07:39.990 --> 00:07:42.500
between the Paleolithic
and the Neolithic Era

00:07:42.500 --> 00:07:43.870
called the Mesolithic.

00:07:43.870 --> 00:07:45.360
And just so you know what
these words mean-- because they

00:07:45.360 --> 00:07:47.401
actually make sense when
you know what they mean,

00:07:47.401 --> 00:07:55.250
paleo means old and lithic
means stone, or of stone.

00:07:55.250 --> 00:07:57.910
So they're really talking
about the Old Stone Age.

00:07:57.910 --> 00:08:03.240
Neolithic, as you could
imagine, means new stone.

00:08:03.240 --> 00:08:05.400
So it's kind of
the New Stone Age.

00:08:05.400 --> 00:08:07.600
And meso means middle.

00:08:07.600 --> 00:08:11.910
So it is the Middle Stone Age.

00:08:11.910 --> 00:08:14.400
So another way of thinking
about this whole period

00:08:14.400 --> 00:08:17.150
from when people
were hunter-gatherers

00:08:17.150 --> 00:08:22.240
all the way to about
11,000 to 7,000 years ago

00:08:22.240 --> 00:08:25.100
when they developed
agriculture-- this whole period

00:08:25.100 --> 00:08:27.270
is called the Stone Age.

00:08:27.270 --> 00:08:29.630
And the Stone Age
is this biggest age.

00:08:29.630 --> 00:08:31.750
And there's just different
ways of describing it,

00:08:31.750 --> 00:08:33.559
because if you just
call it the Stone Age

00:08:33.559 --> 00:08:36.980
you're really making importance
out of the actual tools

00:08:36.980 --> 00:08:38.750
that people could shape.

00:08:38.750 --> 00:08:41.070
They weren't able to
use metal at this point.

00:08:41.070 --> 00:08:43.480
When you refer to
Paleolithic and Neolithic,

00:08:43.480 --> 00:08:45.911
you're maybe referring
a little bit more--

00:08:45.911 --> 00:08:47.660
and there's other ways
to think about it--

00:08:47.660 --> 00:08:48.750
but you're referring
a little bit more

00:08:48.750 --> 00:08:50.690
to the lifestyles of
the human beings--

00:08:50.690 --> 00:08:53.160
Paleolithic being
hunter-gatherers,

00:08:53.160 --> 00:08:56.850
Neolithic having actually
settled, having actually

00:08:56.850 --> 00:09:01.460
started to develop primitive
villages, and even cities.

00:09:01.460 --> 00:09:06.280
And then of course
Mesolithic is in between.

00:09:06.280 --> 00:09:08.590
And just for a pop
culture reference,

00:09:08.590 --> 00:09:10.830
you might have heard
of the Paleolithic diet

00:09:10.830 --> 00:09:12.722
that some people
are going on now.

00:09:12.722 --> 00:09:15.180
And those are people who try
to live like hunter-gatherers.

00:09:15.180 --> 00:09:17.380
Their belief is that
most of human evolution

00:09:17.380 --> 00:09:20.550
occurred while we
were hunter-gatherers,

00:09:20.550 --> 00:09:22.770
and so that's what our bodies
are most accustomed to.

00:09:22.770 --> 00:09:24.720
So they like to eat meat.

00:09:24.720 --> 00:09:26.910
And they like to
eat a lot of nuts.

00:09:26.910 --> 00:09:28.530
And I even met, I
had a coworker once

00:09:28.530 --> 00:09:30.000
who used to only eat raw meat.

00:09:30.000 --> 00:09:31.791
And I don't know if
that is even justified,

00:09:31.791 --> 00:09:34.980
or that's even somehow validated
by the archaeological record.

00:09:34.980 --> 00:09:38.520
These people probably
did cook their meat.

00:09:38.520 --> 00:09:40.730
Now, at the end
of the Stone Age,

00:09:40.730 --> 00:09:44.930
we would have, I would say,
the number two most significant

00:09:44.930 --> 00:09:47.200
development in human history.

00:09:47.200 --> 00:09:49.800
And now we're talking
about 3,000 BC,

00:09:49.800 --> 00:09:52.260
which is about 5,000 years ago.

00:09:52.260 --> 00:09:55.060
And this is the
development of writing.

00:09:55.060 --> 00:09:58.610
So we were hunter-gatherers
about 9,000 to 10,000,

00:09:58.610 --> 00:10:00.100
11,000 years ago.

00:10:00.100 --> 00:10:01.785
People started
developing agriculture.

00:10:01.785 --> 00:10:04.962
It allows them to settle
in more dense environments.

00:10:04.962 --> 00:10:06.920
It also gives them a
little bit more free time,

00:10:06.920 --> 00:10:09.390
because they don't have to
hunt and gather all the time.

00:10:09.390 --> 00:10:12.500
And then you go and once again,
we'll probably discover things

00:10:12.500 --> 00:10:14.950
as we go forward in time
that maybe these dates need

00:10:14.950 --> 00:10:16.570
to be pushed back,
or whatever else,

00:10:16.570 --> 00:10:18.950
or we discover new
civilizations, or who knows.

00:10:18.950 --> 00:10:21.730
But our best sense is
you have these villages.

00:10:21.730 --> 00:10:23.790
You have these
civilizations developing.

00:10:23.790 --> 00:10:28.600
And by about 5,000 years
ago-- so this would be 5,000

00:10:28.600 --> 00:10:33.319
before the present, or 3,000
BC-- Before Christ-- you

00:10:33.319 --> 00:10:34.860
have people saying,
hey, why don't we

00:10:34.860 --> 00:10:40.230
start trying to write down what
we know so that when I tell

00:10:40.230 --> 00:10:43.190
someone orally, it doesn't
actually lose information

00:10:43.190 --> 00:10:43.690
there?

00:10:43.690 --> 00:10:45.520
And then so our
descendants can slowly

00:10:45.520 --> 00:10:47.160
collect all of the
knowledge we have,

00:10:47.160 --> 00:10:49.910
and maybe accelerate-- I don't
know if they did it explicitly

00:10:49.910 --> 00:10:52.550
thinking of these, but let's
just write down what we know.

00:10:52.550 --> 00:10:54.880
And so at about
that period of time,

00:10:54.880 --> 00:10:57.910
you have-- as far as we can
tell-- the first development

00:10:57.910 --> 00:11:00.910
of a pictogram-based
system of writing.

00:11:00.910 --> 00:11:03.080
And the earliest system
of writing we know

00:11:03.080 --> 00:11:07.210
is cuneiform, which is from the
Sumerian civilization, which

00:11:07.210 --> 00:11:10.100
is now in present-day Iraq.

00:11:10.100 --> 00:11:12.120
And what's the really
big deal about this

00:11:12.120 --> 00:11:14.510
is that this is, on some
level, the beginning

00:11:14.510 --> 00:11:16.109
of recorded history.

00:11:16.109 --> 00:11:17.650
We could talk about
the word history.

00:11:17.650 --> 00:11:20.340
You could say that history
is all of the past,

00:11:20.340 --> 00:11:23.090
and we could use the
archaeological record

00:11:23.090 --> 00:11:25.050
to figure out
stuff before people

00:11:25.050 --> 00:11:26.559
started to write things down.

00:11:26.559 --> 00:11:28.350
But when they started
to write things down,

00:11:28.350 --> 00:11:29.183
now it was recorded.

00:11:29.183 --> 00:11:31.340
Now we're actually
getting actual accounts

00:11:31.340 --> 00:11:34.760
of what people know, of
actual people's knowledge.

00:11:34.760 --> 00:11:37.681
And the reason why this is a
big deal-- I mean agriculture,

00:11:37.681 --> 00:11:40.180
hopefully you now appreciate
that it was a pretty big deal--

00:11:40.180 --> 00:11:43.180
but the reason why
writing was a big deal,

00:11:43.180 --> 00:11:46.550
is that now civilization
could collect its knowledge.

00:11:46.550 --> 00:11:49.420
And it could build upon it
generation after generation,

00:11:49.420 --> 00:11:51.680
without having to worry
about people forgetting it,

00:11:51.680 --> 00:11:54.070
or information getting
distorted verbally

00:11:54.070 --> 00:11:58.320
from ancestor to descendant.

00:11:58.320 --> 00:12:01.760
And with that, you also have
the beginning of the Bronze Age.

00:12:01.760 --> 00:12:03.330
And the Bronze Age
is kind of known

00:12:03.330 --> 00:12:05.970
for this beginning of--
even though it's referring

00:12:05.970 --> 00:12:08.630
to a material, which
comes from the first time

00:12:08.630 --> 00:12:10.930
that people started
using bronze as a tool,

00:12:10.930 --> 00:12:13.430
or using bronze for their
tools, and for their weapons--

00:12:13.430 --> 00:12:16.880
and bronze, it's a
mixture of mostly copper

00:12:16.880 --> 00:12:18.190
and a little bit of tin.

00:12:18.190 --> 00:12:20.196
But the Bronze Age--
at least in my mind--

00:12:20.196 --> 00:12:22.820
the biggest deal of what started
at the beginning of the Bronze

00:12:22.820 --> 00:12:26.200
Age really, really
was the writing.

00:12:26.200 --> 00:12:28.880
So once again, just as a
review, because I actually,

00:12:28.880 --> 00:12:33.020
I find this kind of confusing--
our current understanding,

00:12:33.020 --> 00:12:38.380
most of human prehistory,
and even pre-human prehistory

00:12:38.380 --> 00:12:42.110
were spent as hunter-gatherers
using stone tools,

00:12:42.110 --> 00:12:44.380
until about 11,000 years ago.

00:12:44.380 --> 00:12:46.800
And then we became a
little bit more settled.

00:12:46.800 --> 00:12:50.360
We became farmers essentially,
using stone tools.

00:12:50.360 --> 00:12:53.550
And then you fast forward
another about 5,000,

00:12:53.550 --> 00:12:54.930
6,000 years.

00:12:54.930 --> 00:12:56.840
And then we started
to become farmers

00:12:56.840 --> 00:12:59.580
who started to write down
the things that we knew.

00:12:59.580 --> 00:13:03.070
And we started to
use bronze tools.


Mortgage Interest Rates

WEBVTT
Kind: captions
Language: en

00:00:00.379 --> 00:00:02.234
Narrator: When most people
buy a house they need

00:00:02.234 --> 00:00:05.889
to borrow money for some part of
the purchase price of the house.

00:00:05.889 --> 00:00:08.882
Let's say that we have
a house right over here

00:00:08.882 --> 00:00:14.194
and the purchase price is $200,000,

00:00:14.194 --> 00:00:18.600
and I want to buy this house,
and I've saved up $40,000.

00:00:18.600 --> 00:00:23.964
I have saved up $40,000,
so this is my savings,

00:00:23.964 --> 00:00:27.253
so I will use this as a down payment,

00:00:27.253 --> 00:00:29.749
but I still need to borrow the rest

00:00:29.749 --> 00:00:32.461
of the money in order to get to $200,000.

00:00:32.461 --> 00:00:43.670
I'm going to have to get the
balance, the $160,000 as a loan.

00:00:43.670 --> 00:00:45.293
The type of loan that
people that people will get,

00:00:45.293 --> 00:00:49.445
or that they usually get to buy
a house is called a mortgage.

00:00:49.445 --> 00:00:52.946
Mortgage. A mortgage is really just a loan

00:00:52.946 --> 00:00:55.992
where if you don't pay the loan off,

00:00:55.992 --> 00:01:00.069
the person that you borrowed
the money from gets the house.

00:01:00.069 --> 00:01:02.860
Another way to think
about it is it's a loan

00:01:02.860 --> 00:01:06.968
that's secured by the house
until you pay off the loan.

00:01:06.968 --> 00:01:08.863
When you pay off the loan
it is your house to keep,

00:01:08.863 --> 00:01:10.970
but at any point if you don't pay it,

00:01:10.970 --> 00:01:12.643
the bank could come and take the house,

00:01:12.643 --> 00:01:14.657
and that is called a foreclosure.

00:01:14.657 --> 00:01:16.787
Now, what I want to focus on in this video

00:01:16.787 --> 00:01:19.629
is the types of mortgage
loans you will typically see,

00:01:19.629 --> 00:01:21.838
and give you at least the beginning

00:01:21.838 --> 00:01:24.467
of an understanding of how to understand

00:01:24.467 --> 00:01:27.092
what these different types of loans mean.

00:01:27.092 --> 00:01:29.562
In all of these scenarios,
let's just assume

00:01:29.562 --> 00:01:33.331
that I'm in the market to borrow $160,000

00:01:33.331 --> 00:01:35.492
for this house I'm about to buy.

00:01:35.492 --> 00:01:39.066
If you look at any
financial website or any

00:01:39.066 --> 00:01:41.227
of the major search-web portals,

00:01:41.227 --> 00:01:43.620
they'll give you quotes
for mortgage rates.

00:01:43.620 --> 00:01:44.965
You'll see something like this.

00:01:44.965 --> 00:01:46.263
I made these numbers really simple.

00:01:46.263 --> 00:01:50.275
Normally, you'll have some decimals here;
5.25%, 4.18%.

00:01:50.275 --> 00:01:55.132
I made these numbers a little bit
simpler just to make them simpler.

00:01:55.132 --> 00:01:57.685
These are the typical types
of mortgage you will see,

00:01:57.685 --> 00:01:59.145
but if you contact mortgage
broker they will have

00:01:59.145 --> 00:02:01.353
many, many more types, more exotic types;

00:02:01.353 --> 00:02:02.745
but these are the most common

00:02:02.745 --> 00:02:04.352
and this is what we'll
cover in this video.

00:02:04.352 --> 00:02:06.043
Hopefully they'll give you a sense

00:02:06.043 --> 00:02:08.127
of what the other types
of mortgage is like.

00:02:08.127 --> 00:02:12.069
A 30 year fixed mortgage
means that your payment

00:02:12.069 --> 00:02:15.117
and your interest rate
are fixed over 30 years,

00:02:15.117 --> 00:02:19.996
and over the course of those 30
years you will pay off your loan.

00:02:19.996 --> 00:02:24.227
In this situation, this is a 30 ...

00:02:24.227 --> 00:02:29.242
Let me write it over here, let's
think about a 30 year fixed.

00:02:29.242 --> 00:02:32.640
30 year fixed mortgage.
What will happen is you

00:02:32.640 --> 00:02:38.172
will have a fixed mortgage
payment every month,

00:02:38.172 --> 00:02:41.350
and I'll draw a little bar graph
to show the size of your payment.

00:02:41.350 --> 00:02:43.364
You'll see why I'm doing that in a second.

00:02:43.364 --> 00:02:45.696
Let me just draw a little
bit of a graph here.

00:02:45.696 --> 00:02:47.041
Each of these blocks represent

00:02:47.041 --> 00:02:48.814
your monthly payment for that month;

00:02:48.814 --> 00:02:51.711
and I'm just going to make up the
number, let's say it is $2,000.

00:02:51.711 --> 00:02:53.103
I actually haven't figured out the math

00:02:53.103 --> 00:02:55.463
of what is the exact
payment for a 30 year fixed

00:02:55.463 --> 00:02:58.009
with a 5% interest rate for $160,000;

00:02:58.009 --> 00:03:02.889
but, let's just say, for the sake
of simplicity, it's $2,000 a month.

00:03:02.889 --> 00:03:10.485
This height right over here,
let me make it like this.

00:03:10.485 --> 00:03:16.557
This is $2,000 a month. $2,000.

00:03:16.557 --> 00:03:21.393
This is month 1, then you
will pay $2,000 in month 2.

00:03:21.393 --> 00:03:23.921
So on and so forth, all the way.

00:03:23.921 --> 00:03:26.831
If you have 30 years times 12 months,

00:03:26.831 --> 00:03:29.271
you're going to get all
the way to month 360;

00:03:29.271 --> 00:03:33.317
and that is going to be your last payment.

00:03:33.317 --> 00:03:36.303
Month 360 is the last payment in year 30,

00:03:36.303 --> 00:03:38.362
and you would have paid off your loan.

00:03:38.362 --> 00:03:41.623
The interesting thing here
is in the first month,

00:03:41.623 --> 00:03:43.591
since you've borrowed
so much from the bank,

00:03:43.591 --> 00:03:46.511
you've borrowed $160,000, the interest

00:03:46.511 --> 00:03:48.989
that you have to pay on it
is going to be pretty large.

00:03:48.989 --> 00:03:51.852
Most of the initial payments
are going to be interest.

00:03:51.852 --> 00:03:54.669
I'm going to do the interest
in this magenta color.

00:03:54.669 --> 00:03:58.918
In that first payment. Oh, that's
not magenta. This is magenta.

00:03:58.918 --> 00:04:01.630
In that first payment it's
going to be mostly interest.

00:04:01.630 --> 00:04:05.833
You're going to pay a little
bit off of the actual loan;

00:04:05.833 --> 00:04:08.541
so that right there is
your principle payment.

00:04:08.541 --> 00:04:11.351
Let's say, after that first
month, the principle part

00:04:11.351 --> 00:04:14.581
of that $2,000 is, and
I'm just making up numbers

00:04:14.581 --> 00:04:17.370
for the sake of simplicity,
let's say that is $200,

00:04:17.370 --> 00:04:21.416
and the interest portion is $1,800.

00:04:21.416 --> 00:04:23.749
I'm not actually working it
through with these assumptions.

00:04:23.749 --> 00:04:26.416
You don't even have to assume
that's a $160,000 loan,

00:04:26.416 --> 00:04:28.984
but the general idea here
is after this first month

00:04:28.984 --> 00:04:31.840
you would have paid $200 off of your loan.

00:04:31.840 --> 00:04:35.400
If it was $160,000 loan,
after that fist month,

00:04:35.400 --> 00:04:38.668
you don't owe $160,000 minus 2,000,

00:04:38.668 --> 00:04:41.408
because 1,800 of that was interest.

00:04:41.408 --> 00:04:51.418
You now owe $160,000 minus
$200, so you now owe $159,800.

00:04:51.418 --> 00:04:55.590
In the next period your interest
is going to be a little bit lower.

00:04:55.590 --> 00:04:57.819
It's going to be just a little bit lower,

00:04:57.819 --> 00:05:00.300
and your principle, since you're paying

00:05:00.300 --> 00:05:02.980
the same fixed payment
of $2,000 every month,

00:05:02.980 --> 00:05:05.533
is going to be a little bit higher.

00:05:05.533 --> 00:05:07.954
Maybe it's going to be, in the next month,

00:05:07.954 --> 00:05:10.527
something slightly higher;
I don't know, $202.

00:05:10.527 --> 00:05:13.384
You keep going like that
and the math works out;

00:05:13.384 --> 00:05:15.568
they figure out the payment
so that by that last

00:05:15.568 --> 00:05:19.213
payment you're paying
very little interest,

00:05:19.213 --> 00:05:22.046
you're paying very little interest,

00:05:22.046 --> 00:05:25.003
and most of that last
payment is principle.

00:05:25.003 --> 00:05:27.703
It's actually being used for the loan,

00:05:27.703 --> 00:05:31.256
and then after that last
payment, the loan is paid off.

00:05:31.256 --> 00:05:35.373
This will happen over 30
years; this is a 30 year term.

00:05:35.373 --> 00:05:38.782
A 15 year fixed is the same exact idea,

00:05:38.782 --> 00:05:44.824
except instead of it taking 30 years

00:05:44.824 --> 00:05:48.335
to pay off the loan, you're
going to do it over 15 years.

00:05:48.335 --> 00:05:50.422
Instead of it being 360 months,

00:05:50.422 --> 00:05:57.213
in the 15 year case, it
is going to be 180 months;

00:05:57.213 --> 00:05:59.194
and because of that,
your payment for the same

00:05:59.194 --> 00:06:01.964
loan amount is going to
be higher every month

00:06:01.964 --> 00:06:03.737
because you're paying it off quicker.

00:06:03.737 --> 00:06:05.082
You're paying it off in fewer months.

00:06:05.082 --> 00:06:07.698
Instead of $2,000 a month,
maybe it is something

00:06:07.698 --> 00:06:12.602
like $2,800 a month for the 15 year case.

00:06:12.602 --> 00:06:14.791
You're paying it off quicker.

00:06:14.791 --> 00:06:17.641
The 5/1 ARM case, and you'll see,

00:06:17.641 --> 00:06:19.412
and there are many types of ARMs,

00:06:19.412 --> 00:06:20.996
and I'm going to explain to
you in a second what an ARM is,

00:06:20.996 --> 00:06:23.242
but the 5/1 is the most typical.

00:06:23.242 --> 00:06:25.511
I'll explain what that means in a second.

00:06:25.511 --> 00:06:30.312
ARM means 'Adjustable Rate Mortgage.'

00:06:30.312 --> 00:06:34.042
Adjdustable

00:06:34.042 --> 00:06:36.198
Rate

00:06:36.198 --> 00:06:37.928
Mortgage

00:06:37.928 --> 00:06:40.635
As you see, in these situations we had

00:06:40.635 --> 00:06:42.980
the word 'fixed,' and
they were called fixed

00:06:42.980 --> 00:06:45.104
because the interest rate was fixed;

00:06:45.104 --> 00:06:48.282
whatever your remaining
loan balance was you paid

00:06:48.282 --> 00:06:52.545
the same fixed amount of
interest for the next period.

00:06:52.545 --> 00:06:55.927
For this 30 year fixed,
we are being quoted

00:06:55.927 --> 00:06:59.194
a 5% fixed rate over the next
30 years; will not change.

00:06:59.194 --> 00:07:02.764
For the 15 year, we're
quoted a 4% fixed rate.

00:07:02.764 --> 00:07:06.217
For the ARM, the rate can change.

00:07:06.217 --> 00:07:08.993
When someone tells you about a 5/1 ARM,

00:07:08.993 --> 00:07:11.006
they're actually talking about
something called a hybrid ARM;

00:07:11.006 --> 00:07:12.879
but, the general idea behind an adjustable

00:07:12.879 --> 00:07:15.858
rate mortgage is the
amount of interest you pay

00:07:15.858 --> 00:07:17.751
on your remaining balance will change.

00:07:17.751 --> 00:07:19.892
It will change according to some index.

00:07:19.892 --> 00:07:23.131
The most typical types of
adjustable rate mortgages

00:07:23.131 --> 00:07:27.412
are things like this hybrid
ARM; so this is a hybrid.

00:07:27.412 --> 00:07:30.879
A hybrid, it's viewed as
a mixture of 2 things,

00:07:30.879 --> 00:07:33.107
or a combination of 2 things.

00:07:33.107 --> 00:07:35.205
What a hybrid adjustable rate mortgage is

00:07:35.205 --> 00:07:38.167
it has fixed rate for some period of time.

00:07:38.167 --> 00:07:43.576
In this case, it's a
fixed rate for 5 years,

00:07:43.576 --> 00:07:47.008
then the interest rate
can change once a year

00:07:47.008 --> 00:07:50.114
after that, or every 1 years after that.

00:07:50.114 --> 00:07:52.918
That's what this right
over here is telling you.

00:07:52.918 --> 00:07:55.918
In the case of an adjustable rate mortgage

00:07:55.918 --> 00:07:58.800
your payment might look
something like this,

00:07:58.800 --> 00:08:01.286
and I'll just make up
numbers for simplicity

00:08:01.286 --> 00:08:03.432
just to give you the flavor
of what it might look like.

00:08:03.432 --> 00:08:08.448
In the case of a 5/1, your
first 5 years are fixed.

00:08:08.448 --> 00:08:13.585
Your first 5 years. Month 1
is going to look like that.

00:08:13.585 --> 00:08:15.707
Month 2 is going to look like that.

00:08:15.707 --> 00:08:17.551
You go all the way to month 60,

00:08:17.551 --> 00:08:19.602
which is the last month in the 5 years

00:08:19.602 --> 00:08:21.133
and it's going to look like that.

00:08:21.133 --> 00:08:24.149
That's 1, that's month
2, that is month 60.

00:08:24.149 --> 00:08:27.854
This is the course of 5 years.

00:08:27.854 --> 00:08:29.843
This is over the course of 5 years.

00:08:29.843 --> 00:08:33.936
Over the course of 5 years,
the idea is fairly similar.

00:08:33.936 --> 00:08:36.273
You're going to pay, some
part of this is going

00:08:36.273 --> 00:08:40.138
to be interest, and the remainder is going

00:08:40.138 --> 00:08:42.275
to actually be used to pay down the loan.

00:08:42.275 --> 00:08:44.063
Each month you're going to pay down

00:08:44.063 --> 00:08:45.374
a little bit more of the loan, and you're

00:08:45.374 --> 00:08:47.002
going to have to pay a
little less in interest.

00:08:47.002 --> 00:08:48.845
Make that a little bit bigger.

00:08:48.845 --> 00:08:53.262
You're going to have to pay
a little bit less interest,

00:08:53.262 --> 00:08:56.980
because you have less
remaining on your loan,

00:08:56.980 --> 00:09:02.451
but by year 5, or month 60, you
still haven't paid your loan off.

00:09:02.451 --> 00:09:07.063
Maybe the interest is right over there,

00:09:07.063 --> 00:09:08.697
and actually it'll probably
be higher than that.

00:09:08.697 --> 00:09:09.920
I don't want to be too exact,

00:09:09.920 --> 00:09:13.596
but maybe your interest is
going to be right over here;

00:09:13.596 --> 00:09:18.567
and this is what you're
paying down from the loan.

00:09:18.567 --> 00:09:21.398
For a hybrid adjustable rate mortgage,

00:09:21.398 --> 00:09:23.810
after that 5 year period, the bank

00:09:23.810 --> 00:09:26.135
can now change the interest rate.

00:09:26.135 --> 00:09:27.962
The interest rate is going to be dependent

00:09:27.962 --> 00:09:30.365
on some kind of underlying thing

00:09:30.365 --> 00:09:32.597
that everyone is paying attention to.

00:09:32.597 --> 00:09:36.150
That underlying thing
increases in interest.

00:09:36.150 --> 00:09:41.947
In this 5/1 ARM, it starts
off at a 3% interest.

00:09:41.947 --> 00:09:44.246
If, because of the thing that we're paying

00:09:44.246 --> 00:09:47.082
attention to, and I'll talk
more about that in a second,

00:09:47.082 --> 00:09:50.075
interest rates all of a sudden go up.

00:09:50.075 --> 00:09:52.628
Let's say they go up a
lot, then all of a sudden

00:09:52.628 --> 00:09:54.139
your payment could increase.

00:09:54.139 --> 00:09:56.576
Your payment could increase
because the general

00:09:56.576 --> 00:10:00.453
idea behind a 5/1 ARM
is that you are still

00:10:00.453 --> 00:10:03.266
going to pay it off in 30 years.

00:10:03.266 --> 00:10:07.193
They typically, I should
say, have a 30 year term.

00:10:07.193 --> 00:10:09.500
If you just stick with this loan,

00:10:09.500 --> 00:10:11.370
you never try to borrow other money

00:10:11.370 --> 00:10:13.448
to replace this loan, which
is called a refinance,

00:10:13.448 --> 00:10:15.883
if you just stick with this
loan it will take you 30 years

00:10:15.883 --> 00:10:18.208
to pay it off, but after the first 5 years

00:10:18.208 --> 00:10:21.266
the amount of interest
you pay might actually

00:10:21.266 --> 00:10:24.295
change, so your payment
might actually change.

00:10:24.295 --> 00:10:28.008
If the interest rate
goes up, all of a sudden

00:10:28.008 --> 00:10:30.376
you might have to pay a lot more interest

00:10:30.376 --> 00:10:36.892
all of a sudden in month 61, or in year 6.

00:10:36.892 --> 00:10:41.554
Let me do that in, I can do that
part in that same blue color.

00:10:41.554 --> 00:10:44.662
For year 6, since this is a 5/1 ARM,

00:10:44.662 --> 00:10:47.989
they can't change the interest
rate again until year 7,

00:10:47.989 --> 00:10:50.934
so you'll pay this constant
amount until year 7.

00:10:50.934 --> 00:10:53.089
Then, they can change the rate again.

00:10:53.089 --> 00:10:54.742
There usually are some caps

00:10:54.742 --> 00:10:56.840
on how much they can
change the rate each year,

00:10:56.840 --> 00:10:58.958
or how much they can
change the rate in total;

00:10:58.958 --> 00:11:00.627
but it is a little bit riskier because

00:11:00.627 --> 00:11:02.416
you really don't know
what your payment might be

00:11:02.416 --> 00:11:05.878
in year 6, or year 7, especially
if interest rates go up a lot.

00:11:05.878 --> 00:11:08.917
Now, you might be asking what determines

00:11:08.917 --> 00:11:12.884
what that new interest rate
is in after the 5 years.

00:11:12.884 --> 00:11:15.032
They usually pick some type of index.

00:11:15.032 --> 00:11:18.113
The most typical are,
especially in the United States,

00:11:18.113 --> 00:11:22.573
treasury securities; so,
they'll look at the 10 year

00:11:22.573 --> 00:11:24.904
interest rate that
essentially the government

00:11:24.904 --> 00:11:26.634
has to pay when it borrows money,

00:11:26.634 --> 00:11:28.861
and they'll usually take
some premium over this.

00:11:28.861 --> 00:11:31.888
If the 10 year treasury is at 2%,

00:11:31.888 --> 00:11:35.039
the bank might put in your loan documents

00:11:35.039 --> 00:11:37.733
that after the initial
5 year fixed period,

00:11:37.733 --> 00:11:41.286
you will pay 10 year treasury rate plus,

00:11:41.286 --> 00:11:43.115
maybe you'll pay that plus 1%.

00:11:43.115 --> 00:11:46.548
You start off paying the 3%, that's fixed

00:11:46.548 --> 00:11:48.445
even if the treasury does
all sorts of crazy things,

00:11:48.445 --> 00:11:49.905
even if it goes up to
5%, you're just going

00:11:49.905 --> 00:11:52.778
to keep paying the 3%
for the first 5 years,

00:11:52.778 --> 00:11:56.039
but then in that 6th year, let's say that,

00:11:56.039 --> 00:11:57.646
let me write it over here,

00:11:57.646 --> 00:12:02.069
let's say that in year 6
the treasury security rate

00:12:02.069 --> 00:12:07.381
now has bumped up to 4%, then by contract,

00:12:07.381 --> 00:12:09.019
by what's in your loan document,

00:12:09.019 --> 00:12:11.554
you're going to have to pay that plus 1%.

00:12:11.554 --> 00:12:15.923
Now, your mortgage is
going to reset to have

00:12:15.923 --> 00:12:18.634
a 5% rate, have a higher rate.

00:12:18.634 --> 00:12:20.087
You might get lucky, though.

00:12:20.087 --> 00:12:22.222
Maybe the treasury rate goes down,

00:12:22.222 --> 00:12:24.818
maybe it goes to 1%,
and then your mortgage

00:12:24.818 --> 00:12:27.226
rate would actually be 1% plus 1%,

00:12:27.226 --> 00:12:29.776
so it could actually go down to 2%.

00:12:29.776 --> 00:12:32.907
But the general idea is
that's a little riskier,

00:12:32.907 --> 00:12:34.222
because you really don't know

00:12:34.222 --> 00:12:37.316
how predictable that
payment's going to be.

00:12:37.316 --> 00:12:41.966
Most times, if you look
at quoted interest rates,

00:12:41.966 --> 00:12:45.265
you'll see that the 30
year fixed rate is higher

00:12:45.265 --> 00:12:49.918
than the 15 year fixed rate, which
is higher than the adjustable rate.

00:12:49.918 --> 00:12:52.624
That's because the bank, there's a couple

00:12:52.624 --> 00:12:54.813
of different forms of risk,
but the bank is taking

00:12:54.813 --> 00:12:56.775
the least amount of risk
on the adjustable rate

00:12:56.775 --> 00:13:00.382
mortgage, and taking the most
risk on the 30 year fixed.

00:13:00.382 --> 00:13:02.687
The biggest risk here, there's
the risk that you don't

00:13:02.687 --> 00:13:04.281
pay it off; but that's
why they like to see

00:13:04.281 --> 00:13:05.860
a down payment, because they can get

00:13:05.860 --> 00:13:07.466
the house back and
hopefully the house doesn't

00:13:07.466 --> 00:13:09.742
devalue by more than your down payment.

00:13:09.742 --> 00:13:12.575
But, even more than that,
there's an interest rate risk.

00:13:12.575 --> 00:13:14.777
Because what happens if
the bank lends you money,

00:13:14.777 --> 00:13:17.084
lends you a big chunk of money at 5%,

00:13:17.084 --> 00:13:20.123
and that interest rates go up to 6%, 7%,

00:13:20.123 --> 00:13:21.576
what if they go up to 10%?

00:13:21.576 --> 00:13:24.214
What if the bank's borrowing cost,

00:13:24.214 --> 00:13:25.667
the amount of money the
bank has to pay people

00:13:25.667 --> 00:13:27.617
to borrow money, goes up to 10%?

00:13:27.617 --> 00:13:29.547
Then it will be taking
a loss on your loan,

00:13:29.547 --> 00:13:33.134
and they're fixing it
for so long, that's why

00:13:33.134 --> 00:13:34.809
they want to make up for some of that risk

00:13:34.809 --> 00:13:36.278
by charging you higher interest.

00:13:36.278 --> 00:13:39.285
A 15 year loan? A little bit less risk,

00:13:39.285 --> 00:13:41.185
so they'll have a little
bit lower interest.

00:13:41.185 --> 00:13:43.241
A 5/1 ARM? Even lower risk.

00:13:43.241 --> 00:13:45.111
They're only fixed for 5 years,

00:13:45.111 --> 00:13:48.164
and then after that this will float

00:13:48.164 --> 00:13:51.103
with the prevailing interest
rate on an annual basis.

00:13:51.103 --> 00:13:53.204
Hopefully that gives you
a little bit of a primer

00:13:53.204 --> 00:13:56.529
of mortgage interest
rates, but I want to really

00:13:56.529 --> 00:13:59.209
make sure that you don't, just this video

00:13:59.209 --> 00:14:01.479
isn't all you need to take out a loan.

00:14:01.479 --> 00:14:03.445
It's super important to
read the fine details

00:14:03.445 --> 00:14:05.332
on what's happening with that loan,

00:14:05.332 --> 00:14:06.785
especially if you're
buying something more,

00:14:06.785 --> 00:14:08.811
if you're taking out a more exotic loan

00:14:08.811 --> 00:14:10.495
like an adjustable rate mortgage,

00:14:10.495 --> 00:14:14.649
or an interest-only
loan, or an option ARM,

00:14:14.649 --> 00:14:17.594
or any of those more exotic things.


Time value of money

WEBVTT
Kind: captions
Language: en

00:00:00.538 --> 00:00:01.873
Narrator: Whenever we talk about money,

00:00:01.873 --> 00:00:05.444
the amount of money is not
the only thing that matters.

00:00:05.444 --> 00:00:08.363
What also matters is when you have to get

00:00:08.363 --> 00:00:11.070
or when you have to give the money.

00:00:11.070 --> 00:00:13.135
So, to think about this
or to make it a little bit

00:00:13.135 --> 00:00:16.286
more concrete, let's assume
that we live in a world

00:00:16.286 --> 00:00:19.002
that if you put money in
a bank, you are guaranteed

00:00:19.002 --> 00:00:27.007
10% interest, 10% risk
free interest in a bank.

00:00:27.007 --> 00:00:28.951
This is high by historical standards,

00:00:28.951 --> 00:00:30.477
but it will make our math easy.

00:00:30.477 --> 00:00:32.784
So, let's just assume
that you can always get

00:00:32.784 --> 00:00:35.938
10% risk free interest in the bank.

00:00:35.938 --> 00:00:38.736
Now, given that, let
me throw out scenarios

00:00:38.736 --> 00:00:40.735
and have you think about which of these

00:00:40.735 --> 00:00:42.801
that you would most want.

00:00:42.801 --> 00:00:47.269
So, I could give you $100 right now.

00:00:47.269 --> 00:00:49.355
That's option 1.

00:00:49.355 --> 00:00:51.603
I could, in one year,
instead of giving you

00:00:51.603 --> 00:00:54.066
the $100 immediately, in one year

00:00:54.066 --> 00:01:02.735
I could give you $109 and then in 2 years,

00:01:02.735 --> 00:01:09.268
this is kind of option 3,
I'd be willing to give you

00:01:09.268 --> 00:01:16.104
$120, so your choice is,
someone walks up to you

00:01:16.104 --> 00:01:16.764
off the street.

00:01:16.764 --> 00:01:19.540
I could give you $100
bill now, $109 bill ...

00:01:19.540 --> 00:01:24.345
(laughing) $109 bill, $109 in
a year, $120, 2 years from now

00:01:24.345 --> 00:01:25.684
and you know in the back of your mind

00:01:25.684 --> 00:01:28.096
you could get 10% risk free interest.

00:01:28.096 --> 00:01:31.128
So, given that you don't have
an immediate need for money.

00:01:31.128 --> 00:01:33.868
We're assuming that this
money, you will save.

00:01:33.868 --> 00:01:36.738
That you don't have a
bill to pay immediately,

00:01:36.738 --> 00:01:40.015
which of these things
are the most desirable?

00:01:40.015 --> 00:01:42.738
Which of these would
you most want to have?

00:01:42.738 --> 00:01:45.934
Well, if you just cared
about the absolute value

00:01:45.934 --> 00:01:47.933
or the absolute amount of
the money you would say,

00:01:47.933 --> 00:01:50.736
"Hey, look. $120, that's the
biggest amount of money."

00:01:50.736 --> 00:01:53.626
"I'm going to take that one because
that's just the biggest number."

00:01:53.626 --> 00:01:55.469
But, you probably have
in the back of your mind,

00:01:55.469 --> 00:01:57.667
"Well, I'm getting that later,
so there's maybe something

00:01:57.667 --> 00:01:58.674
I'm losing out there?"

00:01:58.674 --> 00:01:59.673
And you'd be right.

00:01:59.673 --> 00:02:01.878
You'd be losing out on
the opportunity to get

00:02:01.878 --> 00:02:05.808
the 10% risk free interest if you
were to get the money earlier.

00:02:05.808 --> 00:02:09.669
And if you wanted to
compare them directly,

00:02:09.669 --> 00:02:11.662
the thought process would be,

00:02:11.662 --> 00:02:15.474
"Well, let's see. If I took
option 1. If I got the $100."

00:02:15.474 --> 00:02:17.387
And if you were to put it in the bank,

00:02:17.387 --> 00:02:23.003
what would that grow to based
on that 10% risk free interest?

00:02:23.003 --> 00:02:27.231
Well, after 1 year 10% of $100 is $10.

00:02:27.231 --> 00:02:29.137
So, you would get $10 in interest.

00:02:29.137 --> 00:02:32.669
So, after one year, you're entire savings

00:02:32.669 --> 00:02:36.223
in the bank will now be $110.

00:02:36.223 --> 00:02:37.739
So, just doing that little exercise

00:02:37.739 --> 00:02:40.885
we actually see that $100 given now,

00:02:40.885 --> 00:02:43.331
put it in the bank at 10% risk free,

00:02:43.331 --> 00:02:46.559
will actually turn into
$110 in a year from now,

00:02:46.559 --> 00:02:50.469
which is better than the
$109 one year from now.

00:02:50.469 --> 00:02:54.407
So, given this scenario, or
given this kind of situation

00:02:54.407 --> 00:02:56.141
or this option, you would rather do this

00:02:56.141 --> 00:02:57.226
than do this.

00:02:57.226 --> 00:03:00.720
A year from now you're better off by $1.

00:03:00.720 --> 00:03:02.405
What about 2 years from now?

00:03:02.405 --> 00:03:04.674
Well, if you take that $100 after 1 year

00:03:04.674 --> 00:03:10.402
it becomes $110, then 10% of $110 is $11.

00:03:10.402 --> 00:03:17.896
You want to add $11 to
it, so it becomes $121.

00:03:17.896 --> 00:03:20.468
So, once again you're
better off taking the $100,

00:03:20.468 --> 00:03:23.738
investing it in the bank
risk free, 10% per year.

00:03:23.738 --> 00:03:27.804
It turns into $121. That
is a better situation

00:03:27.804 --> 00:03:30.069
than just someone guaranteeing you to give

00:03:30.069 --> 00:03:32.405
the $120 in 2 years.

00:03:32.405 --> 00:03:35.882
Once again, you are better off by $1.

00:03:35.882 --> 00:03:38.676
So, this idea that not
just the amount matters,

00:03:38.676 --> 00:03:41.072
but when you get it, this idea is called

00:03:41.072 --> 00:03:43.637
the time value of money.

00:03:43.637 --> 00:03:49.201
Time value of money.

00:03:49.201 --> 00:03:50.466
Or another way to think about it is,

00:03:50.466 --> 00:03:54.215
think about what the value
of this money is over time.

00:03:54.215 --> 00:03:56.204
Given some expected interest rate

00:03:56.204 --> 00:03:58.222
and when you do that you
can compare this money

00:03:58.222 --> 00:04:01.800
to equal amounts of money
at some future date.

00:04:01.800 --> 00:04:04.550
Now, another way of thinking
about the time value

00:04:04.550 --> 00:04:07.738
or, I guess, another related
concept to the time value of money

00:04:07.738 --> 00:04:13.803
is the idea of present
value, present value.

00:04:13.803 --> 00:04:16.351
Maybe I'll talk about
present and future value.

00:04:16.351 --> 00:04:23.470
So, present and future
value, future value.

00:04:23.470 --> 00:04:27.669
So, given this assumption,
this 10% assumption,

00:04:27.669 --> 00:04:31.298
if someone were to ask you,
"What is the present value

00:04:31.298 --> 00:04:35.218
of $121 2 years in the future?"

00:04:35.218 --> 00:04:37.808
They're essentially asking you,

00:04:37.808 --> 00:04:40.604
so what is the present value?

00:04:40.604 --> 00:04:42.802
PV stands for present value.

00:04:42.802 --> 00:04:47.138
So, what is the present value
of $121 2 years in the future?

00:04:47.138 --> 00:04:49.803
That's equivalent to
asking what type of money

00:04:49.803 --> 00:04:52.737
or what amount of money would
you have to put into the bank

00:04:52.737 --> 00:04:56.867
risk free for the next
2 years to get $121?

00:04:56.867 --> 00:04:58.989
We know that. If you put $100 in the bank

00:04:58.989 --> 00:05:04.393
for 2 years at 10% risk
free, you would get $121.

00:05:04.393 --> 00:05:06.532
So, the present value here,

00:05:06.532 --> 00:05:12.387
the present value of $121 is the $100.

00:05:12.387 --> 00:05:15.282
Or another way to think about
present and future value

00:05:15.282 --> 00:05:18.052
if someone were to ask
what is the future value?

00:05:18.052 --> 00:05:24.387
So, what is the future value
of this $100 in 1 year?

00:05:24.387 --> 00:05:28.389
So, in 1 year. Well, if
you get 10% in the bank

00:05:28.389 --> 00:05:32.612
that's guaranteed, it's
future value is $110.

00:05:32.612 --> 00:05:38.323
After 2 years, it's 2
year future value is $121.

00:05:38.323 --> 00:05:39.528
So, with that in mind let me give you

00:05:39.528 --> 00:05:41.523
one slightly more interesting problem.

00:05:41.523 --> 00:05:43.724
So, let's say that I have ... let's say,

00:05:43.724 --> 00:05:45.650
we're going to assume this the whole time

00:05:45.650 --> 00:05:48.279
that makes our math easy
at 10% risk free interest.

00:05:48.279 --> 00:05:51.613
And let's say that someone
says they're willing

00:05:51.613 --> 00:06:01.120
to give us $65 in 1 year

00:06:01.120 --> 00:06:03.055
and we were to ask ourselves,

00:06:03.055 --> 00:06:05.920
"What is the present value of this?"

00:06:05.920 --> 00:06:10.251
So, what is the present value of this.

00:06:10.251 --> 00:06:12.862
Remember, the present
value is just asking you

00:06:12.862 --> 00:06:15.187
what amount of money, that if you were to

00:06:15.187 --> 00:06:17.456
put it in the bank at
this risk free interest,

00:06:17.456 --> 00:06:21.362
would be equivalent to this $65?

00:06:21.362 --> 00:06:23.525
Which of these 2 are equivalent to you?

00:06:23.525 --> 00:06:26.786
You would say, "Well, look.
Whatever amount of money that is?"

00:06:26.786 --> 00:06:28.687
Let's call that X.

00:06:28.687 --> 00:06:30.651
Whatever amount of money that is, times,

00:06:30.651 --> 00:06:33.119
if I grow it by 10%, that's literally,

00:06:33.119 --> 00:06:38.022
I'm taking X+10%X+ ...
let me write it this way.

00:06:38.022 --> 00:06:43.856
+10%xX ... Let me write it ...
Let me make it clear this way.

00:06:43.856 --> 00:06:52.455
X+10%X should be equal to our $65.

00:06:52.455 --> 00:06:55.687
If I take the amount I
get 10% of that amount

00:06:55.687 --> 00:06:58.523
over the year, that
should be equal to $65.

00:06:58.523 --> 00:07:01.114
This is the same thing as 1X

00:07:01.114 --> 00:07:04.855
or we can say that
1X+10% is the same thing

00:07:04.855 --> 00:07:09.453
as 0.10X is equal to
65, or you add these 2.

00:07:09.453 --> 00:07:14.185
1.10X = 65, and if you want to solve

00:07:14.185 --> 00:07:16.690
for the actual amount of
the present value here,

00:07:16.690 --> 00:07:20.693
you would just divide
both sides by the 1.10.

00:07:20.693 --> 00:07:24.325
You get X is equal to ...
let me do it this way.

00:07:24.325 --> 00:07:26.389
It will be a little bit
more clear about it.

00:07:26.389 --> 00:07:29.105
So, let's divide both sides by 1.0

00:07:29.105 --> 00:07:30.452
and really that trailing
zero doesn't matter.

00:07:30.452 --> 00:07:32.649
We're not really too worried
about the precision here

00:07:32.649 --> 00:07:36.058
because this actually exactly 10%.

00:07:36.058 --> 00:07:38.027
So, this is going to
be ... these cancel out

00:07:38.027 --> 00:07:40.525
and X is going to be equal to,

00:07:40.525 --> 00:07:42.891
let me get the calculator out,

00:07:42.891 --> 00:07:49.796
X is going to be equal
to 65 divided by 1.1,

00:07:49.796 --> 00:07:53.956
$59.09, rounding it.

00:07:53.956 --> 00:08:01.855
So, X=59.09, which was the present value

00:08:01.855 --> 00:08:03.995
of $65 in one year,

00:08:03.995 --> 00:08:05.689
or another way to think about it is

00:08:05.689 --> 00:08:08.625
if you wanted to know
what the future value

00:08:08.625 --> 00:08:12.944
of $59.09 is in 1 year,
assuming the 10% interest,

00:08:12.944 --> 00:08:15.464
you would get the $65.


Inflation Overview

WEBVTT
Kind: captions
Language: en

00:00:00.733 --> 00:00:02.045
Voiceover: Let's say I am an economist,

00:00:02.045 --> 00:00:05.274
and I am curious about
whether, in general,

00:00:05.274 --> 00:00:07.681
things are getting more expensive or not,

00:00:07.681 --> 00:00:09.143
and if they are getting expensive,

00:00:09.143 --> 00:00:10.605
by how much?

00:00:10.605 --> 00:00:12.009
The way I'd approach that is,

00:00:12.009 --> 00:00:15.135
I'd think of, what are just
a bunch of goods and services

00:00:15.135 --> 00:00:16.937
that the average person would buy?

00:00:16.937 --> 00:00:20.427
I would think up some type

00:00:20.427 --> 00:00:26.083
of basket of goods and services,

00:00:26.083 --> 00:00:27.803
and I would try to weight that basket,

00:00:27.803 --> 00:00:30.137
based on how people
actually spend their money,

00:00:30.137 --> 00:00:32.400
so I would say, "Okay,
40% of people's money

00:00:32.400 --> 00:00:34.268
"on average are spent on housing;

00:00:34.268 --> 00:00:37.516
"maybe another 10% is
spent on transportation;

00:00:37.516 --> 00:00:40.137
"maybe another 10% is spent on food,"

00:00:40.137 --> 00:00:41.675
and I would go out into the market,

00:00:41.675 --> 00:00:43.742
and I would try to take an average

00:00:43.742 --> 00:00:45.201
of what these things cost,

00:00:45.201 --> 00:00:46.742
and I would sample a bunch of products,

00:00:46.742 --> 00:00:47.946
a bunch of services,

00:00:47.946 --> 00:00:49.943
so I could get a decent average of that.

00:00:49.943 --> 00:00:53.944
This is not a simple thing to do,

00:00:53.944 --> 00:00:54.974
but I am an economist,

00:00:54.974 --> 00:00:56.441
and I am serious about
trying to calculate it.

00:00:56.441 --> 00:00:58.813
Let's say that when I
take that weighted average

00:00:58.813 --> 00:01:01.072
of all of the stuff, I
just come up with a number.

00:01:01.072 --> 00:01:02.904
I'm not giving you the details

00:01:02.904 --> 00:01:04.888
of how it's actually calculated,

00:01:04.888 --> 00:01:06.144
but to give you the idea

00:01:06.144 --> 00:01:07.667
of what they are doing.

00:01:07.667 --> 00:01:08.856
I get a number.

00:01:09.779 --> 00:01:14.156
To rent, to buy or lease
your average automobile;

00:01:14.156 --> 00:01:15.743
to lease your average apartment;

00:01:15.743 --> 00:01:18.007
to buy your average servings of food

00:01:18.007 --> 00:01:20.801
for a given family; all the rest;

00:01:20.801 --> 00:01:23.501
let's say I come up with, that costs,

00:01:23.501 --> 00:01:25.003
and I'm making up a number here,

00:01:25.003 --> 00:01:27.833
let's say that it costs $20,000.

00:01:27.833 --> 00:01:30.007
My basket of goods and services.

00:01:30.007 --> 00:01:32.408
Just based on the way
that I've weighted it.

00:01:32.408 --> 00:01:35.409
This is all happening in year 1.

00:01:35.409 --> 00:01:37.901
This is in year 1.

00:01:39.301 --> 00:01:42.011
I'm curious whether between year 1

00:01:42.011 --> 00:01:45.272
and, let's say, year 5,

00:01:45.272 --> 00:01:47.170
and year 5,

00:01:47.170 --> 00:01:49.467
whether things got more expensive.

00:01:49.467 --> 00:01:52.578
I'll take that same basket
of goods and services,

00:01:52.578 --> 00:01:58.826
so, basket of goods and services,

00:01:58.826 --> 00:02:00.012
and I'll try to figure out

00:02:00.012 --> 00:02:02.769
what is their weighted
average cost in year 5?

00:02:02.769 --> 00:02:05.374
This is a lot harder than
it might sound right now,

00:02:05.374 --> 00:02:08.208
because the baskets of
goods and services change.

00:02:08.208 --> 00:02:09.758
If computers get faster,

00:02:09.758 --> 00:02:11.279
do you use the same computer,

00:02:11.279 --> 00:02:13.466
or do you think about what
the average computer is,

00:02:13.466 --> 00:02:15.124
which would now be a better computer?

00:02:15.124 --> 00:02:17.335
If most people's TVs got bigger,

00:02:17.335 --> 00:02:20.083
do you use the same TV
in year 1 and year 5

00:02:20.083 --> 00:02:22.743
or do you adjust for what
is now the average TV,

00:02:22.743 --> 00:02:23.939
which is now bigger?

00:02:23.939 --> 00:02:25.907
If houses have gotten bigger on average,

00:02:25.907 --> 00:02:26.996
do you use the same house,

00:02:26.996 --> 00:02:28.208
or would you use the average house?

00:02:28.208 --> 00:02:29.740
There's a whole bunch of areas here

00:02:29.740 --> 00:02:31.344
that you can really tweak,

00:02:31.344 --> 00:02:33.742
and these are actually
huge subjects of debate,

00:02:33.742 --> 00:02:36.750
on what is the actual increase in cost.

00:02:36.750 --> 00:02:37.938
Let's say that you're able to do this

00:02:37.938 --> 00:02:40.539
in what you think is a
pretty reasonable way,

00:02:40.539 --> 00:02:43.012
and you find that the
same basket of goods,

00:02:43.012 --> 00:02:45.407
adjusted for things like
technology and all of the rest,

00:02:45.407 --> 00:02:50.080
now costs $22,000.

00:02:50.080 --> 00:02:52.387
Your takeaway from here

00:02:52.387 --> 00:02:54.991
is that the same things that cost $20,000,

00:02:54.991 --> 00:02:56.067
the things that gave you

00:02:56.067 --> 00:02:57.671
the same standard of living in year 1,

00:02:57.671 --> 00:03:00.280
to get that same standard
of living in year 5,

00:03:00.280 --> 00:03:03.079
you now need to spend 10% more.

00:03:03.079 --> 00:03:07.032
It's gotten $2,000 more
expensive off of $20,000,

00:03:07.032 --> 00:03:10.312
so it's gotten 10% more expensive.

00:03:10.312 --> 00:03:11.615
You, as the economist,

00:03:11.615 --> 00:03:14.134
what you would say is, as
the way you've defined it,

00:03:14.134 --> 00:03:16.568
your consumer price index,

00:03:16.568 --> 00:03:18.670
and this is abbreviated with CPI,

00:03:18.670 --> 00:03:20.535
consumer price index,

00:03:20.535 --> 00:03:26.341
your consumer price index is up by 10%.

00:03:26.341 --> 00:03:28.678
Or another way, based on
the way you measured it,

00:03:28.678 --> 00:03:30.199
and it changes from country to country,

00:03:30.199 --> 00:03:31.337
and even within countries,

00:03:31.337 --> 00:03:35.005
they change the way that they
do these basket of goods,

00:03:35.005 --> 00:03:36.400
but by the way you've measured it,

00:03:36.400 --> 00:03:39.408
you would say that price inflation,

00:03:42.376 --> 00:03:43.573
or, you would say that

00:03:43.573 --> 00:03:47.599
the price inflation has been 10%

00:03:47.599 --> 00:03:50.338
between year 1 and year 5,

00:03:50.338 --> 00:03:53.635
or in general everything
got 10% more expensive,

00:03:53.635 --> 00:03:55.610
or you would need 10% more money

00:03:55.610 --> 00:03:58.748
to have the same standard of living.

00:03:58.748 --> 00:04:00.599
In general, when people are just referring

00:04:00.599 --> 00:04:03.339
to inflation, so if you just see

00:04:03.339 --> 00:04:05.335
the word "inflation" being referred to,

00:04:05.335 --> 00:04:07.053
especially in modern times,

00:04:07.053 --> 00:04:09.681
they are referring to price inflation.

00:04:09.681 --> 00:04:12.384
This general increase in the
price of goods and services,

00:04:12.384 --> 00:04:15.104
measured by some type of basket of goods.

00:04:15.104 --> 00:04:17.077
There is another type of inflation,

00:04:17.077 --> 00:04:20.072
and that is monetary inflation.

00:04:20.072 --> 00:04:22.801
Monetary inflation; and they are related.

00:04:22.801 --> 00:04:26.866
Monetary inflation is inflation due purely

00:04:26.866 --> 00:04:29.301
to an increase of the money supply.

00:04:29.301 --> 00:04:34.884
This is increase in money supply.

00:04:34.884 --> 00:04:39.138
In general, if this
increase in the money supply

00:04:39.138 --> 00:04:42.739
does outstrip the productive
capacity of the country,

00:04:42.739 --> 00:04:46.827
it could very well lead
to price inflation,

00:04:46.827 --> 00:04:48.676
but in general what people measure,

00:04:48.676 --> 00:04:49.737
when they talk about inflation,

00:04:49.737 --> 00:04:50.672
from one year to the next,

00:04:50.672 --> 00:04:52.276
they're talking about
this basket of goods.

00:04:52.276 --> 00:04:54.152
They're talking about price inflation.

00:04:54.152 --> 00:04:56.087
The other thing that you'll sometimes see,

00:04:56.087 --> 00:05:00.337
maybe in year 5, someone says,

00:05:00.337 --> 00:05:02.608
"Hey; I could sell you this house,"

00:05:02.608 --> 00:05:05.409
so this is in year 5,

00:05:05.409 --> 00:05:06.890
"I could sell you a house,

00:05:06.890 --> 00:05:14.140
"and this house in year 5 is $660,000."

00:05:14.140 --> 00:05:16.556
Is $660,000.

00:05:16.556 --> 00:05:19.889
Someone might ask, what
would be that price

00:05:19.889 --> 00:05:24.301
if we adjusted it for
inflation in year 1 dollars?

00:05:24.301 --> 00:05:25.403
What they're saying is,

00:05:25.403 --> 00:05:30.405
if you adjust for how much
value your money has lost,

00:05:30.405 --> 00:05:32.387
because if things are
getting more expensive,

00:05:32.387 --> 00:05:34.733
that means each dollar
is being worth less.

00:05:34.733 --> 00:05:37.132
You can buy less with each dollar.

00:05:37.132 --> 00:05:38.624
When people say, "How much is that,

00:05:38.624 --> 00:05:42.222
"adjusted for inflation in year 1 money?"

00:05:42.222 --> 00:05:43.339
you're essentially saying,

00:05:43.339 --> 00:05:45.471
"What amount of money would that house

00:05:45.471 --> 00:05:47.407
"have had to cost in year 1,

00:05:47.407 --> 00:05:49.312
"that when you adjust it for inflation,

00:05:49.312 --> 00:05:51.683
"when you increase it by 10%,"

00:05:51.683 --> 00:05:53.976
so that's the same
thing; increasing by 10%

00:05:53.976 --> 00:05:57.886
is the same thing as multiplying by 110%,

00:05:57.886 --> 00:06:00.405
or multiplying by 1.1,

00:06:00.405 --> 00:06:02.670
so, "what amount of money would that house

00:06:02.670 --> 00:06:04.384
"had to have cost in year 1,

00:06:04.384 --> 00:06:06.403
"that if I multiply it by 1.1,

00:06:06.403 --> 00:06:09.680
"I get $660,000?"

00:06:09.680 --> 00:06:10.929
We could do a little
bit of quick math here,

00:06:10.929 --> 00:06:12.537
to figure that out.

00:06:12.537 --> 00:06:14.953
If we say, let's say that, I don't know,

00:06:14.953 --> 00:06:16.196
let's call it P.

00:06:16.196 --> 00:06:18.266
P is the price of the house in year 1.

00:06:18.266 --> 00:06:19.862
I'll call it P1.

00:06:19.862 --> 00:06:22.135
That x 1.1 ...

00:06:22.135 --> 00:06:24.157
x 1.1

00:06:24.157 --> 00:06:28.073
is going to be equal to $660,000,

00:06:28.073 --> 00:06:32.068
when you factor in the 10%
inflation over these years.

00:06:32.068 --> 00:06:33.672
This is simple algebra right here.

00:06:33.672 --> 00:06:36.941
You can divide both sides by 1.1.

00:06:36.941 --> 00:06:40.198
Divide both sides by 1.1,

00:06:40.198 --> 00:06:44.607
and we get, these cancel out,

00:06:44.607 --> 00:06:48.025
you get the price of that house in year 1;

00:06:48.025 --> 00:06:51.395
$66 divided by 11 would be 6.

00:06:51.395 --> 00:06:52.938
You could work it out with a calculator,

00:06:52.938 --> 00:06:54.017
if you don't feel comfortable

00:06:54.017 --> 00:06:55.362
with what I'm about to do,

00:06:55.362 --> 00:06:59.366
but this would give you $600,000,

00:06:59.366 --> 00:07:01.605
if you work this math right out here,

00:07:01.605 --> 00:07:03.181
and you could figure out the decimals.

00:07:03.181 --> 00:07:04.273
What we could do ...

00:07:04.273 --> 00:07:06.799
I think you get the general idea here.

00:07:06.799 --> 00:07:07.863
You can use your calculator.

00:07:07.863 --> 00:07:09.475
I did this one in my head,

00:07:09.475 --> 00:07:10.732
but the general idea is,

00:07:10.732 --> 00:07:15.061
a house in year 1 that is $600,000,

00:07:15.061 --> 00:07:16.593
$600,000,

00:07:16.593 --> 00:07:19.565
if you factor in the
devaluing of the currency,

00:07:19.565 --> 00:07:22.268
or how much more expensive everything got,

00:07:22.268 --> 00:07:25.105
in year 5 would cost $660,000.

00:07:25.105 --> 00:07:27.136
You might hear someone say,

00:07:27.136 --> 00:07:28.363
when they're talking about inflation,

00:07:28.363 --> 00:07:30.184
or they're talking about price increases,

00:07:30.184 --> 00:07:33.629
"This house in year 5 is $660,000,

00:07:33.629 --> 00:07:46.357
"which is equal to
$600,000 in year 1 money."

00:07:46.357 --> 00:07:48.465
As an example of that,
I live in a neighborhood

00:07:48.465 --> 00:07:51.609
where the houses have
gotten all of a sudden,

00:07:51.609 --> 00:07:54.107
because I live in the
heart of Silicon Valley,

00:07:54.107 --> 00:07:57.133
it's not a fancy neighborhood by
any stretch of the imagination,

00:07:57.133 --> 00:07:59.285
but the houses now are quite expensive,

00:07:59.285 --> 00:08:01.285
and we have neighbors
who moved in in the '50s,

00:08:01.285 --> 00:08:02.662
and they say, "My God; I bought our house

00:08:02.662 --> 00:08:04.660
"for $10,000, and now people

00:08:04.660 --> 00:08:06.992
"are selling these
houses for so much more."

00:08:06.992 --> 00:08:08.998
The reality is, is that it is true;

00:08:08.998 --> 00:08:10.995
the house has appreciated,

00:08:10.995 --> 00:08:15.233
but $10,000 in 1950 was
actually a lot, a lot, of money.

00:08:15.233 --> 00:08:18.148
Doctors and engineers did
not make that much more

00:08:18.148 --> 00:08:20.234
than that much per year.

00:08:20.234 --> 00:08:21.593
I don't know the exact amount.

00:08:21.593 --> 00:08:24.602
The reality is that you
actually have to adjust money

00:08:24.602 --> 00:08:26.263
for the year that you're talking about,

00:08:26.263 --> 00:08:28.405
and you have to adjust it for inflation.

00:08:28.405 --> 00:08:31.609
If you believe this 10% inflation number,

00:08:31.609 --> 00:08:35.483
hopefully people's incomes also
increased by the same amount,

00:08:35.483 --> 00:08:38.994
so the same person with the
same skills and the same job,

00:08:38.994 --> 00:08:42.741
who could afford the house
for $600,000 in year 1

00:08:42.741 --> 00:08:45.865
could now pay $660,000 for it,

00:08:45.865 --> 00:08:48.159
and it won't take an unusually large chunk

00:08:48.159 --> 00:08:49.932
of their expenditure.

00:08:49.932 --> 00:08:52.741
It would take the same
chunk that it did in year 1.

00:08:52.741 --> 00:08:54.883
Hopefully that clarifies
things a little bit,

00:08:54.883 --> 00:08:57.262
and I'll, in the future, do more videos,

00:08:57.262 --> 00:08:59.700
going into the details of inflation.