Inflation Flashcards
1
Q
An unanticipated increase in government budget deficit shifts AD:
A
To the right
2
Q
What are supply shocks?
A
Unanticipated increase in energy or other supply costs
3
Q
Why is inflation undesirable?
A
- Redistribution from debtors to creditors
- Creates speculative investment activity
- Usually costly to eliminate
4
Q
What’s the nominal interest rate?
A
- Market interest rate
- Annual percentage increase in the nominal value of a financial asset
5
Q
What is the real interest rate?
A
Annual percentage increase in the purchasing power of a financial asset
6
Q
What is the calculation for the real interest rate?
A
Nominal interest rate - inflation rate
