Naked Economics Chapter 9

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Eric Baumbach
AP Macro
Response Paper
“Making money takes time, so when we shop, we're really spending time. The real cost of living isn't measured in dollars and cents but in the hours and minutes we must work to live (5).” After reading this sentence, I felt a little confused about what the author meant in this sentence. However, after reading the inflation example about stockings and cell phones, I truly do understand and agree with this quote. As the author explains, just because the price goes up, doesn’t mean that the cost of living has gone up. By factoring in wages people make per hour and comparing that with the price of an item such as stockings or cell phones, the cost of living can in fact be lower than it once was. It all depends on how much time of work is needed to acquire the item desired. Using this method, as the author elaborates, is really how we determine if the cost of an item costs more than it once did. Along with the importance of cost of living, the Real GDP and Real GDP per capita also play an important role in our economic growth. While talking about GDP, the author states the feelings of Americans by stating “Indeed, if we all believe the economy is likely to get worse, then it will get worse. And if we all believe it will get better, then it will get better (12).” I believe what the author means by this is that we decide whether the economy goes up or down based upon how we feel as a society about spending. The more we spend, the greater real GDP becomes which allows more investments to occur. Because this happens, our economy will continue to expand and do well leading to a respectful amount of inflation along with that. On the other side, when we feel that the economy is likely to become worse, we cut back on spending causing real GDP to go down allowing businesses to invest less forcing them to lay off people (greater unemployment) leading to a worse economy. It’s a continuous cycle; the people determine how the...
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