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Eco-Unit 3-inflation

Eco- Unit 3--inflation

TermDefinition
inflation an increase in the GENERAL level of prices over time
deflation -negative inflation rate -decrease in the general level of prices overtime
disinflation decrease in the inflation rate (lowering of)
nominal wages current value of your wage NOT adjusted for inflation
real wages your nominal wage adjusted for inflation real wage= nominal % raise - inflation rate
nominal interest rate the agreed upon interest rate between the borrower & lender, NOT adjusted for inflation
real interest rate nominal rate adjusted for inflation real interest rate= nominal rate - inflation rate
debtor a borrower
creditor a lender
unanticipated inflation costs-- 1-3 1) inflation decreases your real income 2) decreases real interest rates impacting borrowers & lenders 3) people who try to profit during inflation, may become less productive @ work
unanticipated inflation costs-- 4-6 4) hyperinflation 50% or higher can lead people to abruptly stop spending 5) Congress & Fed. (central bank) may have to take action to stop spending in the econ. 6) you purchase a 1 yr CD (certificate of deposit) for $100 at 7%--(nominal) interest
anticipated inflation costs-- 1-2 1) shoe-leather cost: costs of inflation that arise from trying to reduce holdings of cash 2) menu cost: costs associated w/ changing prices & printing new price lists when there is inflation
price index -measures the cost of purchasing a given market basket in a given yr -this is used to calculate inflation from yr to yr cost of basket in given yr --------------------------------------- X 100 cost of same basket in base yr
rate of inflation price index of the yr going to - price index from yr going frm --------------------------------------------------------------------------X 100 price index from the yr from
Created by: bbell123
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