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18 Cards in this Set
- Front
- Back
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Inflation
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an increase in the average level of prices
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deflation
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a decrease in the average level of prices
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If you are a borrower, unexpected inflation is a ____ thing—it reduces the value of money that you must repay. If you are a lender, it is a ___ thing because it reduces the value of future payments you will receive.
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-good
-bad |
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inflation always produces the following effects on the economy: it _______ the value of money and it _____ the value of future monetary obligations. It can also create uncertainty about the future.
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-reduces
-reduces |
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Money loses value when its purchasing power ____
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-falls
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indexed payment
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one whose dollar amount changes with the rate of change in the price level
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Hyperinflation
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an inflation rate in excess of 200% per year
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price index
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a number whose movement reflects movement in the average level of prices
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base period
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a time period against which costs of the market basket in other periods will be compared in computing a price index
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Price index=
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Price index = current cost of basket / base-period cost of basket
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consumer price index (CPI)
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a price index whose movement reflects changes in the prices of goods and services typically purchased by consumers.
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CPI=
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CPI = current cost of basket / 1982–1984 cost of basket
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implicit price deflator-
Implicit price deflator= |
a price index for all final goods and services produced, is the ratio of nominal GDP to real GDP
Implicit price deflator = nominal GDP / real GDP |
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personal consumption expenditures price index, or PCE price index
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includes durable goods, nondurable goods, and services and is provided along with estimates for prices of each component of consumption spending
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Rate of inflation or deflation =
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Rate of inflation or deflation = percentage change in index / initial value of index
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real value
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A value expressed in units of constant purchasing power
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nominal value
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A value expressed in dollars of the current period
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Real value of Xt
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Real value of Xt = Xt / price index (or CPI) at time t
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