Inflation Flashcards
a situation in which the economy’s overall price level is rising
Inflation
percentage change in the price level
inflation rate
the measure of the overall cost of goods and services bought by a consumer
consumer price index
Consumer Price Index (formula)
CPI = (Price of the basket of goods and services / Price of the basket in the base year) x 100
Inflation rate (formula)
Inflation rate in year 2 = [(CPI in year 2 - CPI in year 1) / CPI in year 1] x 100
The year-on-year change in the CPI
Inflation
the total final output produced with inputs owned by the residents of a country during a year
Gross Domestic Product
GDP at current market prices
Nominal GDP
the calculated value of volume or quantity of production
after removing the influence of changes in price or inflation
Real GDP
ratio of Nominal GDP to Real GDP
GDP Deflator
GDP Deflator (formula)
(Nominal GDP / Real GDP) x 100
Nominal GDP (formula)
[(real GDP)(GDP Deflator)] / 100
Formula for calculating inflation rate using GDP Deflator
IR = [(GDP Def 2 - GDP Def 1) / GDP Def 1] x 100
Prices rise slowly and predictably.
Money retains its value from month to month and year to year.
Low Inflation
Double-digit or triple-digit range of 20, 100, or 200 percent per year.
Galloping Inflation
Prices are rising a million or even a trillion percent per year.
When governments print money
Hyperinflation
Simultaneously experiencing stagnant activity and accelerating inflation.
Recession-inflation
Stagflation
Occurs when aggregate demand rises more rapidly than the economy’s productive potential, pulling prices up
Demand-pull inflation
Inflation wherein it increases because of increases in costs rather than because of
increases in demands
Cost-push inflation
Also known as supply-shock inflation
Cost-push inflation
often leads to stagflation
Cost-push inflation
Macroeconomic tool used to understand inflation
The Phillips Curve
shows the tradeoff between inflation and unemployment
The Phillips Curve
At full employment (when labor demands are supplied)
Non-accelerating inflation rate of unemployment
specific level of unemployment where the inflation is constant.
Non-accelerating inflation rate of unemployment
equilibrium between the economy and labor market
Non-accelerating inflation rate of unemployment