3.2 unemployment [D] Flashcards
What is Inflation ?
Inflation is a persistently rising price level.
when the price level rises rapidly the inflation rate is high.
What is Disinflation ?
Disinflation is a reduction in the rate of inflation.
the price level is rises more slowly so inflation rate is low.
What is Deflation ?
Deflation = a persistently falling price level .
occurs when the inflation rate is negative.
How do we Measure the Price Level ?
A ] Measure the inflation rate or the deflation rate.
B ] Distinguish between money values and real values of economic variables. such as loans and savings.
Why Inflation and Deflation are Problems ?
True or False or Both
Why inflation and deflation are problems ?
- When there steady there not a problem.
- Unpredictable inflation or deflation are problems because they :
1. Redistribute Income.
2. Redistribute Wealth
3. Lower Real GDP and Employment
4. Diverts Resources from Production
Why Inflation and Deflation are Problems ?
- Redistribute Income
- Redistribute :
- Workers and employers often have contracts that last for a year or more.
- An unexpected increase in inflation raises prices but doesn’t immediately raise wages.
- Unexpected deflation has the opposite effect.
Why Inflation and Deflation are Problems ?
- Redistribute Wealth.
- Redistribute Wealth :
- People enter into loan contracts which an agreed intrest rate as a % of the money lent and borrowed.
- Unexpected inflation, the money repaid by the borrower to the lender buys less than the money that was originally loaned.
- Unexpected deflation the money that the borrower repays to the lender buys more that the money originally loaned and the lender benefits.
Why Inflation and Deflation are Problems ?
- Lower Real GDP and Employment.
- Lower Real GDP and Employment :
- Unexpected inflation that increases firm’s profits may cause and increase in investment and a rise in output and employment.
- Unexpected deflation has even worse consequences for output and employment.
Why Inflation and Deflation are Problems ?
- Diverts Resources from Production.
- Diverts Resources from Production :
- Unpredictable inflation or deflation creates economic uncertainty an diverts resources from productive activates to forecasting inflation.
What is Hyperinflation ?
Hyperinflation = an inflation rate 50 per cent a month or higher that grinds the economy to a halt and society to a collapse.
What is Measuring Inflation ?
Measuring Inflation :
- Inflation refers to the rate of change of the aggregate price level.
- The inflation rate is the % change in the price level from one period to the next.
What’s the Consumer Price Index ?
The consumer price index [ CPI ] is a measure of the overall cost of a fixed basket of the g/s bought by a typical consumer.
How the CPI is calculated ?
- Fix the Basket.
- Find the Price
- Compute the Baskets Cost
- Choose a Base Year and Compute the Index
- Compute the inflation rate
How the CPI is calculated ?
- Fix the Basket
- Fix the Basket :
- Determine the price over 5 years.
-
How the CPI is calculated ?
- Find the Price.
- Find the Price :
- find the price of each of the g/s in the basket for each point in time.