Chapter 8 - The Prive Level & Inflation Flashcards Preview

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Flashcards in Chapter 8 - The Prive Level & Inflation Deck (30)
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1
Q

When does inflation occur?

A

When price levels rise

2
Q

What is an extremely high inflation rate called?

A

Hyperinflation

3
Q

What occurs when the overall price level drops?

A

Deflation

4
Q

What is considered negative inflation?

A

Deflation

5
Q

Who measures reports and inflation rates?

A

The Bureau of Labor Statistics (BLS)

6
Q

What is the most common price level used to measure the inflation rate?

A

The consumer price index (CPI)

7
Q

What is the measure of the price level based on the consumption pattern of a typical consumer?

A

The consumer price index

8
Q

What makes up the largest portion of the CPI market basket?

A

Housing

9
Q

How do you find your basket price?

A
  1. Quantity x Price

2. Add all up

10
Q

What are the steps in calculating the CPI?

A
  1. You figure out your basket price of the base year
  2. You create you index
  3. Compute your price index
11
Q

How do you calculate your price index?

A

(basket price of current year/ basket price of base year) x 100

12
Q

What is calculated as the percentage change in the price level?

A

The inflation rate

13
Q

How do you calculate the inflation rate?

A

((Current index - base year index)/Base year index) x 100

14
Q

2014

(2) Popcorn = $4
(2) Coke = $4
(1) Movie Ticket = $8

2015

(2) Popcorn = $6
(2) Coke = $4
(1) Movie Ticket = $10

  1. Calculate the CPI of 2015
  2. Calculate the inflation rate
A
  1. 125

2. 25%

15
Q

When CPI rises do individual prices always rise?

A

No

16
Q

How do you measure the price of something over time?

A

original price x (Today’s CPI/Base year CPI)

17
Q

Do wages rise or fall when CPI rises?

A

They rise

18
Q

What are the 3 most common concerns when CPI overstates true inflation?

A
  1. Substitution
  2. Changes in quality
  3. New products and locations
19
Q

What is the measure of CPI in which the consumer’s basket is updated monthly?

A

Chained CPI

20
Q

What is it called when as prices go up so does the cost to hold money?

A

Shoe-leather costs

21
Q

What is it called when people interpret nominal wage or price change as real changes?

A

Money illusion

22
Q

What is a person’s wage expressed in current dollars called?

A

Nominal wage

23
Q

What is the nominal wage adjusted for changes in price level called?

A

Real wage

24
Q

What is the cost of changing prices called?

A

Menu costs

25
Q

What is the production that a firm creates called?

A

Output

26
Q

If unexpected inflation occurs who is better off, you or the bank?

A

You

27
Q

If unexpected deflation occurs who is better off, you or the bank?

A

The bank

28
Q

If inflation is expected will the bank require more or less money in return?

A

More

29
Q

What is it called when you are unable to tell the difference between a demand increase or inflation?

A

Price confusion

30
Q

What is it called when inflation makes capital gains appear larger and thus increases tax burdens?

A

Tax distortion