13 Inflation Flashcards
GDP grows month-over-month; unemployment rate goes down
expansion
real GDP is at its highest
peak
GDP growth slows/declines
contraction
between contraction + expansion; GDP recovers
trough
general increase in prices, or decrease in money’s purchasing power
inflation
caused by presence of too much money
inflation
caused by excessive demand, increase in producers’ per unit cost (inc. in price of input)
inflation
aggregate demand > aggregate supply
demand-pull
profligate government spending
demand-pull
debt monetization (gov’t budget deficit)
demand-pull
investments are high (new business/expansion of business)
demand-pull
interest rates are low (borrow more, buy more)
demand-pull
lowering taxes (more disposable income)
demand-pull
increase in price of input; producers face increasing operating costs
cost-push
how producers are affected by inflation
- consumer prices increase while wages paid to employees relatively stable
- allows producers to experience higher profits
how borrowers are affected by inflation
value of borrower’s debt is reduced
how lenders are affected by inflation
hurt as the money they loaned will not be repaid with money that is not worth as much
how savers are affected by inflation
inflation erodes purchasing power of savings and other forms of financial wealth
real income decreased
effects of inflation
how employees are affected by inflation
lose their jobs
refers to fixed set of consumer products and services valued on annual basis
representative basket of goods
used to track inflation in a spec. market/country
representative basket of goods
represents overall price of goods and services
price index
measures cost of rep basket of goods and services bought by typical firm
producer price index
measures cost of rep basket of goods and services bought by typical customer
customer price index
headline inflation
inflation figure from CPI
inflation figure adjusted for seasonality and for fluctuating elements of food + energy prices
core inflation
formula for CPI
[quantity current x price current]/[quantity base x price base] x 100
formula for inflation rate
[CPI current - CPI previous/CPI previous] x 100
