# Compute the annual rate of inflation.

Compute the annual rate of inflation.

Inflation, International Trade and Capital Flows, and the Aggregate Demand/Aggregate Supply Model

We begin by showing how to combine prices of individual goods and services to create a measure of overall inflation. We will also discuss the historical and recent experience of inflation, both in the United States and in other countries around the world. Then, we will start to examine the balance of trade in more detail, by looking at some patterns of trade balances in the United States and around the world. We will explore the intimate connection between international flows of goods and services and international flows of financial capital, which to economists are really just two sides of the same coin. We close this unit with an introduction the macroeconomic model of aggregate supply and aggregate demand, how the two interact to reach a macroeconomic equilibrium, and how shifts in aggregate demand or aggregate supply will affect that equilibrium.

Objectives:

· Calculate the annual rate of inflation.

· Explain and use index numbers and base years when simplifying the total quantity spent over a year for products.

· Discuss merchandise trade balance, current account balance, and unilateral transfers.

· Examine both Say’s Law and Keynes’ Law, and determine whether it applies in the short run or the long run.

Articles, Websites, and Videos:

Is there value in building global relationships?

· Lehmann, S. M. (2014). The value of building global relationships. New Hampshire Business Review, 36(17), 14.

Use this cost of living calculator to respond to the discussion board assignment for this unit.

· Cost of Living Calculator

The four resources below may be used to complete the assignment for this unit.

· US Business Cycle Expansions and Contractions. Cambridge, MA: The National Bureau of Economic Research [online].

· FRED Economic Data. (n.d.). Real Gross Domestic Product. Federal Reserve Bank of St. Louis.

· FRED Economic Data. (n.d.). Real Potential Gross Domestic Product. Federal Reserve Bank of St. Louis.

· Ecoterms. (2015). Real Business Cycle Theory [website].

Supplemental Resources:

Use this site to augment your readings for the week regarding all things associated with inflation.

· Inflation Data

Use these sites to help augment any research you may need for this week’s subjects. It may be helpful to add a bookmark for each site in your internet browser.

· The Brookings Institution

· The Economist- Economics

· Forbes- Economics & Finance

· Investopedia

· Bloomberg View- Economics

· World Economic Forum

· The Heritage Foundation

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