unit 4: inflation

Question 1

inflation

Answer 1

general increase in prices across the economy –> prices generally go up over time (1%-2%) —> shrinks purchasing power (the ability to purchase goods + services)

Question 2

most common measure of inflation

Answer 2

price level (price index)

Question 3

How to calculate inflation?

Answer 3

the % of change in price level over time—> CPI (later yr) - CPI (earlier yr)/ CPI (earlier yr)

Question 4

What in the market basket can throw off inflation for a period of time?

Answer 4

transportation—> fuel prices
food prices
both experiences sharp increases & decreases, core inflation rates exclude food + fuel

Question 5

deflation

Answer 5

reduction of the general level of prices in an economy

Question 6

hyperinflation

Answer 6

inflation occurring at a very high rate

Question 7

What is the inflation target set by Federal Reserve?

Answer 7

2%

Question 8

Consumer’s Price Index (CPI)

Answer 8

a price index determined by measuring the price of a standard group of goods meant to represent the “market basket” of a typical urban consumer

Question 9

price index

Answer 9

shows how the avg prices of a standard group of goods change over time “market basket”

Question 10

core inflation

Answer 10

exclude food and fuel