ECON 201 Chapter 7 Flashcards
Inflation
An increase in the average level of prices of goods and services
Deflation
A decrease in the average level of prices of goods and services
Relative Price
The price of one good in comparison with the price of other goods
Nominal Income
The amount of money income received in a given time period, measured in current dollars
Real Income
Income in constant dollars; nominal income adjusted for inflation
Money Illusion
The use of nominal dollars rather than real dollars to gauge changes in one’s income or wealth
Hyperinflation
Inflation rate in excess of 200 percent, lasting at least one year
Bracket Creep
The movement of taxpayers into higher tax brackets (rates) as nominal incomes grow
Consumer Price Index (CPI)
A measure (index) of changes in the average price of consumer goods and services
Inflation Rate
The annual percentage rate of increase in the average price level; (Price Level Year 2 − Price Level Year 1)/Price Level Year 1
Base Year
The year used for comparative analysis; the basis for indexing price changes
Item Weight
The percentage of total expenditure spent on a specific product; used to compute inflation indexes
Core Inflation Rate
Changes in the CPI, excluding food and energy prices
GDP Deflator
A price index that refers to all goods and services included in GDP
Nominal GDP
The value of final output produced in a given period, measured in the prices of that period (current prices)
