Inflation Flashcards
Define Inflation
A general, sustained upward movement of prices of goods & services in an economy
As prices rise, what happens to the quantity of goods & services?
The quantity of goods and services that each dollar can buy diminishes
What does a 2% annual inflation rate mean?
On average, a dollar buys 2% fewer goods & services than it did a year before
What does CPI stand for?
Consumer Price Index
How does the CPI measure inflation?
By tracking the prices paid for a market basket of consumer goods & services over time
What price does the BLS set the market basket equal to during a particular time period?
100
What do changes in index value measure?
Inflation and inflation rate
What does it mean if the CPI rises from 100 to 104 in 1 year?
4% inflation & average prices are 4% higher
What causes inflation?
Too much money chasing too few goods
What happens if the money supply increases too quickly?
Supply of goods & services might not keep up, causing prices to be pushed higher as people compete to buy
What does the money supply affect?
Inflation and spending
True or False? A little inflation is considered unhealthy
False. A little is considered healthy
What is the Federal Reserve and what does it influence?
The central bank of the US, influences the nation’s money supply
What are the 2 economic goals of Congress’ Dual Mandate for the Federal Reserve?
Price stability & maximum employment
Define Price Stability
A low and stable rate of inflation maintained over an extended period of time
