INFLATION Flashcards
What is inflation?
A sustained rise in the level of prices generally or a sustained decrease in purchasing power.
What is Consumer Price Index?
It Measures the yearly cost of a shopping cart full of things Americans tend to buy in a year ( a “market basket” )
What is the Inflation rate?
The rate of change in prices over a set period of time.
What is Demand-Pull?
It happens when the total demand rises faster than the production of goods and services. It also happens when incomes increase.
What is Cost-Push?
It happens when increases in the cost of production push up prices.
inputs like labor, land, capital, and management go up. (ex. shipping costs, wages.)
What is the Wage-Price Spiral?
- Begins with increased wages.
- Higher production costs for businesses.
- Higher prices for products.
- Demands by workers for higher wages.
What is the target rate of inflation that the Federal Reserve aims for in order to achieve price stability?
2%
What is the Impact of inflation by decreasing the Value of the Dollar?
The dollar is worth less than it was previously so it takes more money.
People on fixed incomes hit hard because they didn’t get wage increase.
What is the impact of inflation by increasing interest rates?
Borrowing money on VARIABLE INTEREST LOANS becomes more expensive to keep up with the rate of inflation.
Credit card payment rise. Consumers buy less items that require borrowing (ex.cars).
What is the impact of inflation by decreasing real returns on savings?
If the inflation rate is higher than your interest rate in your savings account or bond, you can lose money you are trying to save.
What is creeping inflation?
Small rate of inflation over a small period of time.
What is hyperinflation?
A rapid uncontrolled rate of inflation in excess of 50% per month.
What is deflation?
A decrease in the general price level of goods and services.
Is deflation a good of bad thing for the economy?
IT IS BAD!
- Businesses make less profit
- Leads to workers getting laid-off
- Less workers making money means they buy less.
-This leads to other businesses losing money, layoffs, etc.
What is Nominal GDP?
GDP measures in current prices.
It does not account for inflation from year to year.
