Inflation Flashcards
1
Q
3 Benefits of Inflation
A
1) Reduces the risk of deflation and deflationary spiral.
2) Reduces the real value of debt.
3) Decreases real wages which lowers costs for firms.
2
Q
3 Cons of Inflation
A
1) Price-wage spiral and hyperinflation.
2) Reduces real wages and savings, worsening inequality.
3) Uncertainity, reducing investment
3
Q
Problems with CPI
A
1) Unusual spending habits
2) Time lags
3) Changes in quality
4) Exclusion of mortgages
4
Q
Formula to calculate Real GDP Growth
A
Real GDP Growth = Nominal GDP Growth - Inflation rate
