Inflation is measured by rising prices on a basket of goods and services, So it is seperate to GDP.
You can have increased GDP without having Inflation. Inflation is measured by the prices of a basket of goods over time.
I find it easier to understand inflation by thinking about it as the money supply it's self inflating, More money floating around compared to actual goods and services offered for sale = rising prices, Less money floating around compared to goods and services available = lower prices.
Generally a money supply with either be inflating or deflating, Inflation is generally seen as the lessor of the two evils, So most central banks choose to be leaning towards a steady slow rate of inflation say 3%, rather than slip into deflation.
1, i've been doing a bit more reading, and just read an article that stated with europe and the US printing so much more money, this devalues the currency and drives inflation (more money than services or products offered), which in turn would further choke spending having the opposite effect to what the central banks desire when offering QE packages?
2, i understand that QE packages are more aimed at fixing major banks balance sheets, most likely in hope that people will borrow again(further their debt) but surely the idea is that somewhere along the line the money ends up in the hands of those that have the potential to stimulate the economy?
3, anyway my question is when the fed's pull this money out of thin air, does it increase gdp? and is the above statement about inflating prices and choking spending correct at all?
Can someone please give me a detailed run-down of exactly what gross domestic product is, how the value is obtained, what relation it has to an economy, why it is so important, and exactly what it's an indicator of. Also if someone could give me examples of good and bad gdp and maybe some current levels. I read about it everywhere and understand its very important but i just dont have a good understanding of the ins and outs of it.
Thanks in advance.
It is whatever the government of the country which calculates it want it to be.
It is estimated based on the information they have available.
It has little relation to the economy.
It is not very important.
It is an indicator of nothing.
This is helpful to understand:
http://www.youtube.com/watch?v=-xCy6sDxnhs
http://www.youtube.com/watch?v=FzEDkFDeJ_A
It is whatever the government of the country which calculates it want it to be.
It is estimated based on the information they have available.
It has little relation to the economy.
It is not very important.
It is an indicator of nothing.
This is helpful to understand:
http://www.youtube.com/watch?v=-xCy6sDxnhs
http://www.youtube.com/watch?v=FzEDkFDeJ_A
i understand that QE packages are more aimed at fixing major banks balance sheets, most likely in hope that people will borrow again(further their debt) but surely the idea is that somewhere along the line the money ends up in the hands of those that have the potential to stimulate the economy?
anyway my question is when the fed's pull this money out of thin air, does it increase gdp? and is the above statement about inflating prices and choking spending correct at all?
QE is aimed at stimulating the economy, not at fixing bank balance sheets.
But isnt buying up the banks toxic debts essentially what they are doing to stimulate the economy? to free up the banks cashflow to allow them to lend?
which is a different approach compared to k rudds $900+ handouts(which i thought would have more of a positive impact on an economy - albeit a temporary one - than buying bad debt?) I guess different problems require different actions.
QE is more aimed at: attempting to prevent deflation that should naturally occur, taking pressure of debt-laden governments by monetizing their debt, increasing bank reserves against their callable liabilities (bank deposits) to prevent them blowing up in 'runs', and temporarily depressing interest rates. Any 'stimulation' is a short-term illusion that actually damages the economy.QE is aimed at stimulating the economy, not at fixing bank balance sheets.
In theory it should, but if the banks aren't lending that money out (and companies are also hoarding it) then the velocity of money will continue to fall, which will mean that the increase in money supply isn't actually going to work. This is what happened in Japan.
HAHA what a joke! im upto chapter 16 so far, do you know if these same types of practises are carried out in australia by the gov.? including the altering of true inflation rates to make them appear substantially lower, through these weird and wonderful ways of calculating it?
or are we slightly more realistic?
The banking system here isn't screwed.
QE is more aimed at: attempting to prevent deflation that should naturally occur, taking pressure of debt-laden governments by monetizing their debt, increasing bank reserves against their callable liabilities (bank deposits) to prevent them blowing up in 'runs', and temporarily depressing interest rates. Any 'stimulation' is a short-term illusion that actually damages the economy.
And yes, if banks are stuffed (like in Japan, with its 'zombie banks'), you get continuous credit contraction, causing deflation, regardless of money printing - until the credit contraction finally clears, and you probably then get an explosion of inflation.
Starcraftmazter said:Yet. Just a matter of time mate.
Hey mate. Terribly sorry, I meant to link you to chapter 16, but I haven't seen that in a little while and got it mixed up a bit, since both of those talk about inflation.
Yes, the Australian government does this as well, the way inflation (actually the CPI) is calculated was changed along with the US, and since then it has calculated the cost of survival rather than the cost of living. Similar to GDP, Australia has the biggest housing bubble in the developed world, so you can imagine where a lot of the GDP growth comes from.
The Chinese government is particularly bad at giving it's GDP statistics, which should always be dismissed. However you can still choose to pay attention to trends. Even given how flawed all these statistics are, we still have trends to follow.
Another problem is the way CPI is calculated changes very frequently (every few years), although no change has been as significant as the one outlined in the Crash Course video.
it seems ludacris?! how are they allowed to do that? and their justification appears to simply be 'we falsify figures to make them look more appealing'?
just a touch off topic but i recently read a book that outlined how absurd the US unemployment figures are calculated(as discussed in the video briefly). They did a bit of research and i cant recall exactly, but they came in at around 3 percent higher unemployment than they currently claim(approx 9% i believe).
sorry what trends are you referring to exactly?
Who is there to stop them? They are the government, and the vast majority of the population don't know enough about economics to understand how screwed they are being.
This is especially bad when you consider that in Australia too, the re-indexing of welfare payments (and government salaries) is done based on CPI. Funny that, when electricity goes up by 15-20% pa, or water at 30%pa, I can't really substitute it for a pedal powered electricity generator and ocean water, and yet if you believe the government that is precisely what we must do
When houses have risen by 9% pa during the last credit bubble, people were not able to substitutde them for cardboard box shelters, and yet inflation was apparently at historical lows
I believe they keep underemployment figures which are more accurate in relation to how employment used to be calculated, and are currently running at 14 and something percent.
GDP trends, or the trends of any other statistic. Even if the way it's measured is flawed, if you can take that into account, you the trends of that statistic might still be of some (limited) use.
Haven't you seen the Momentum Energy ad on TV? Seems to be working fine for that bloke...Funny that, when electricity goes up by 15-20% pa, or water at 30%pa, I can't really substitute it for a pedal powered electricity
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