Chapter 14- Section 3 Flashcards
How is price level used in determining the rate of inflation?
Change in price level divided by beginning price level times 100
The relative magnitude of prices at one point in time
Price level
Inflation between 1%-3%
Creeping inflation
Inflation between 100% to 300%
Galloping inflation
Inflation that is greater than 500% per year
Hyper inflation
In what way does excessive demand cause inflation?
Shortages occur and prices go up
What happens when the federal budget has a surplus?
Government collects more taxes than they are spending to help keep inflation down
How do labor costs affect inflation?
Dries up the cost of products for manufacturers therefore causing inflation
What is the wage price spiral?
Higher prices force workers to ask for higher wages, producers been raise their prices
What is excessive monetary growth?
Money supply grows faster than real GDP
How does inflation affects the purchasing power of the dollar?
Dollar falls as price rises therefore dollar loses value over time
What part of the population is inflation especially hard on?
The people with the fixed income; retirees
What happens if people change their spending habits?
It disrupts the economy
What happens when businesses adjust their spending habits?
Causes spending on durable goods to fall dramatically
What is one cause of inflation?
Excessive demand (demand-pull) caused by consumers, Deficient spending (government), Cost-push (producers, businesses(wage price spiral))
