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Macro/Inflation
Question | Answer |
---|---|
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) |