4.6 Price Stability Flashcards
Define the term “Barter”
Direct exchange of goods and services for other goods and services.
Define the term “Price stability”
A low and stable inflation rate.
Define the term “Inflation rate”
The percentage rise in an economy’s price level over a period of time.
Define the term “Price level”
The average if all prices in an economy.
Define the term “Inflation”
A sustained increase in an economy’s price level over a period of time.
Define the term “Creeping inflation”
A low rate of inflation.
Define the term “Hyperinflation”
A very high rate of inflation, which may result in people losing confidence in the currency.
Define the term “Deflation”
A sustained fall in the price level.
Define the term “Disinflation”
A fall in the inflation rate.
Define the term “Annual average method”
A way of calculating the inflation rate by comparing the average level of prices during a twelve-month period with the average level in the previous twelve months.
Define the term “Year-on-year method”
A way of calculating the inflation rate by comparing the percentage change in the price level from a given month with that of the same month of the previous year.
Define the term “Consumer price index”
A measure that shows the average change in the prices of a representative basket of products purchased by households.
Define the term “Money values”
Values at the prices operating at the time.
Define the term “Real data”
Data adjusted for inflation.
Define the term “Wage-price spiral”
Higher wages causing prices to rise which, in return, push up wages and so on.
Define the term “Demand-pull inflation”
Inflation caused by the increase in aggregate demand not matched by equivalent increases in aggregate supply.
Define the term “Monetarists”
Economists who consider that inflation is caused an excessive growth in the money supply.
Define the term “Menu costs”
Costs to firms of having to change prices due to inflation
Define the term “Shoe leather costs”
Costs of moving money around in search of the highest interest rate.
Define the term “Fiscal drag”
The income of people and firms being pushed into a higher tax bracket as a result of inflation.
Define the term “Inflationary noise”
Confusion over relative prices caused by inflation.
Define the term “Total cost”
The sum of fixed costs and variable costs.
Define the term “Debtors”
People, firms, or governments who owe money.
List 3 potential benefits about inflation.
- Stimulating output : a little inflation is good
It motivates people to spend money now - Reduce the burden of debt : the value of money
reduces therefore so does the value of debt - Prevent some unemployment : reducing real wage
costs for firms
