02/04/16         Inflation- increase in prices

Formula- Price Index in 2 years - Price Index in 1 year / Price Index in 1 year

Hurt by Inflation:

1. Savers
2. Lenders/ Creditors
3. People who are on a fixed income - (elderly, wellfare)

Helped by Inflation:

1. Delators; people who owe money; borrowers

Cost of Living Adjustments- automatic wage increase when inflation occurs (New York and California due to standard of living)

GDP Gap- the amount by which actual GDP falls short of potential GDP

Okun's Law- For every 1% in which actual enemployment rate exceeds the NRU, a GDP of about 2% occurs.
                    - Ex. In 2012 the unemplyment for Mexico was 7.4%. The NRU is 6%. Calculate GDP Gap.
(Actual) 7.4 - 6 (NRU) = 1.4 X 2 = 2.8

Rule of 70- used to determine how many years it takes for a value to double; given a particular annual growth rate.
                  - Ex. If you put $20,000 in the bank, and it earns a yearly interest of 7%. How many years will it take for your income to double? 10 years due to rule of 70.