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Macro/Inflation

QuestionAnswer
A sustained increase in the average of all prices of goods and services in an economy inflation
A sustained decrease in the average of all prices of goods and services in an economy deflation
The value of money for buying goods and services purchasing power
Price expressed in today’s dollars nominal value
Value expressed in purchasing power, adjusted for inflation real value
Representative bundle of goods and services market basket
The point of reference for comparison of prices in other years base year
The cost of today’s market basket of goods expressed as a percentage of the cost of the same market basket during a base year price index (cost of market basket today/cost of market basket in base year x 100)
A statistical measure of a weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas Consumer Price Index (CPI)
CPI in year 2 – CPI in year 1 __________________________ x 100 CPI In Year One Inflation Rate
A statistical measure of a weighted average of prices of goods and services that firms produce and sell Producer Price Index (PPI)
A price index measuring the changes in prices of all new goods and services produced in the economy GDP Deflator
A statistical measure of average price using annually updated weights based on consumer spending PCE Index
The inflation rate that we believe will occur Anticipated Inflation
Inflation at a rate that comes as a surprise Unanticipated Inflation
The market rate of interest expressed in today’s dollars Nominal Rate of Interest
The nominal rate of interest minus the anticipated rate of inflation Real Rate of Interest
Nominal Interest Rate - Expected Inflation Rate = Real Interest rate
Creditors lose… they are being paid back with money that has a lower value Debtors gain…they are paying back with money that has a lower value Unanticipated Inflation
Clauses in contracts that allow for increases in specified nominal values to take account of changes in the cost of living COLA's
an extraordinary rise in the price levels. hyperinflation
a reduction in the rate of Inflation disinflation
caused by continual reductions in economy wide production Supply side inflation (Cost Push) inflation
When consumers are wanting to purchase more goods and service than firms are willing to produce given current available resources and technology. Demand side inflation (Demand Pull)
Created by: 100000038822431
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