Inflation Flashcards
A sustained rise in the average price level of basic commodities over a period of years
Inflation
The ability to purchase goods and
services
Purchasing power
A measurement that shows how the
average price of a standard group of goods changes
overtime
Price index
a representative collection of goods
and services (g&s)
Market basket
Excess demand pulls up prices
Demand Pull
Rising costs drive up prices
Cost-Push
Types of Cost-Push
Wage-price spiral, Profit-push inflation, Supply-side shocks
Rising wages force companies to
increase prices.
Wage-price spiral
In many industries, there are only a
small number of companies.
Easy for them to raise prices to
protect their profit margins.
Profit-push inflation
Dramatic and unexpected
increases in the prices of key materials, such as oil or energy in general.
Supply-side shocks
Hurt by Inflation
Lenders-People who
lend money (at fixed
interest rates).
People with fixed
incomes.
Savers
Helped by Inflation
Borrowers-People
who borrow money.
A business where the
price of the product
increases faster than
the price of resources.
Wage measured by dollars rather
than purchasing power
Nominal Wage
Wage adjusted for inflation
Real Wage
Costs money to change
listed prices
Menu Costs
