CPI Versus the GDP Deflator

A couple more cold days for Florida may lead to more problems in measuring the cost of living.

Article: http://www.nytimes.com/aponline/2010/01/07/business/AP-US-Commodities-Review.html?scp=3&sq=oranges%20freeze&st=cse

If a series of major frosts were to destroy the nation's orange crop, the quantity of oranges produced would fall to zero. Following this, consumers can expect to see the price of the oranges that remain to sky rocket. Furthermore the oranges lost from the frost, are no longer apart of GDP, and the increase in the price will not be accounted for by the GDP deflator. But because CPI is computed with a fixed basket of goods, that includes oranges, the increase in prices would lead to a substantial rise.

One of the more subtle differences between CPI and the GDP deflator results from the way the two measures aggregate the plethora of prices in the economy. The CPI is considered to be a Laspeyres index, in that it's computed using a fixed basket of goods, whereas the GDP deflator , a Paasche index, allows the basket of goods to change overtime.

In the example of the destroyed orange crop, CPI would most likely overstate the impact of the increase in orange prices on consumers, because it ignores the consumer's ability to substitute for goods whose relative prices have fallen (Substitution Bias). In contrast, because the GDP deflator is a Paasche index, it understates the impact on consumers as it shows no rise in prices, yet the higher price of oranges would surely make the consumers worse off. Despite these incongruities, the difference between the GDP deflator and the CPI is not usually that large and both seem to tell the same story about how quickly prices are rising. At the same time however, some economist have suggested revising laws to reduce the degree of indexation. In the work by Matthew Shapiro and David Wilcox, "Mismeasurement in the Consumer Price Index: An Evaluation" it concludes that CPI does overestimate the cost of living, and their evidence suggests that the bias is centered on 1.0% point per year. Overall CPI is a very closely watched measure of inflation, given the weight it has on policy makers decisions a mismeasurement has potentially profound impacts on both fiscal and monetary policy. At bottom, in cold days like these, it's time we give measurement problems a closer look.

China's Central Bank Moves to Curb Overheating Economy

Article: http://news.bbc.co.uk/2/hi/business/8454531.stm

China's central bank has stepped in to curb lending in its banking system.

Chinese banks must now keep more money back in reserves, the first such increase since June 2008, thereby taking cash out of the economy.

Chinese Premier Wen Jiabao recently urged banks to curb lending, saying they needed to be "more balanced".

China is concerned about inflation and potential asset bubbles - in stocks and property - forming in its booming economy.

The People's Bank of China also raised the interest rate on its one-year Treasury bills, another move designed to remove money from the system.

The central bank has issued a series of calls recently to banks to moderate their lending.

Monetary policy

"It would be good if our bank lending was more balanced, better structured and not on such a large scale," Mr Wen said recently, according to the Xinhua news agency.

The new moves came a day after state media reported that the banks had extended 600bn yuan ($88bn, £54bn) in loans in the first week of January.

China had employed what it called a "moderately loose" monetary policy over the past year to keep the economy growing amid the global downturn.

Economic growth is not the worry for China that it is for many other parts of the world, particularly developed nations.

The country has announced it is targeting economic growth of 8% this year.

Up to 2 Million Jobs From Stimulus- White House

Article:

http://money.cnn.com/2010/01/13/news/economy/stimulus_jobs/index.htm

The focus of this article is about the stimulus plan from the Obama administration, but talks a fair amount about GDP growth from the stimulus spending. It is difficult to calculate what GDP growth (decline) would have been without the stimulus, but several analysts estimate that it added between 1 and 3% to GDP growth in 2009. The rest of the article goes on to debate between how the left and right calculate these GDP growth estimates and unemployment rates.

Fed Report Notes Modest Improvement in Economy

http://www.nytimes.com/2010/01/14/business/economy/14econ.html?ref=business

This article is obviously a little optimistic about the future of the economy. The "C" and "I" portion of the National Income Accounting Identity (Y=C+I+G+NX) is mentioned in this article, as consumer spending and home sales are slowly increasing. Demands for loans remain low however, and possibly have declined in some cities.

Super Bowl Advertisements

Article: http://www.nytimes.com/2010/01/13/business/media/13adco.html?ref=business

This article, dated January 12, 2010, explains how different companies acted when buying spots for the Super Bowl between last year’s Super Bowl and the upcoming Super Bowl. Many companies have dropped out including Fedex, Pepsi and General Motors, all who were regular advertisers for the big game. This may be due to the companies still being in tough times, for example, General Motors who probably can’t or does not want to spend millions of dollars on various thirty-second slots. However, many companies have jumped on the Super Bowl advertisement spots including Boost Mobile, KGB and Dockers. The companies who are just joining feel as if their service has something special to offer and will stand out to their viewers. Millions have people are watching the Super Bowl, many just for the commercials and viewers will be surprised when they see new companies like Dockers while Pepsi is holding out for this years.

Unemployment Rates by State

"Joblessness Across the U.S.: Unemployment Rates by State"

The Wall Street Journal

Last Updated on December 18, 2009

http://blogs.wsj.com/economics/2009/12/18/joblessness-across-the-us-unemployment-rates-by-state-2/

Though this article is outdated by a month it is still very relevant to what we are learning about and important for college students to look at, in reference to finding jobs. The last updated unemployment rate for the United States is 9.7% in December 2009. According to the chart, 15 states and Washington D.C. have higher unemployment rates than the national average, and lower rates are seen in 19 states. The purpose of me posting this chart is to view which states it may be easier to get a job in after school. Stay away from Michigan with its rate of 14.7%!