Inflation- The Cost of Living Flashcards

1
Q

Nominal measure

A

hasnt been adjusted over time

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2
Q

real measure

A

has been adjusted for price changes over time

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3
Q

preferred measure

A

real measures, depict changes over time

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4
Q

inflation

A

occurs when economy’s overall price level is rising

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5
Q

deflation

A

occurs when economy’s overall price level is falling

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6
Q

inflation rate

A

percent change in prices from one time period to another

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7
Q

consumer price index

A

overall cost of goods and services bpught by the typical consumer, moniters changes in the cost of living over time

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8
Q

cpi rises

A

family has to spend more to maintain same quality of life

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9
Q

changes in cpi measured by

A

how much more or less a typical family would have to spend to purchase their previous basket

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10
Q

fix the basket

A

determine what goods and services are most important to the typical urban consumer

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11
Q

find the prices

A

find the prices of goods and services in the basket for the base year

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12
Q

compute index

A

divide price of basket in one year by price in base year and multiply by 100

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13
Q

calculate inflation rate

A

cpi in y1-cpi in y2/cpi in y1 x100

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14
Q

demand pull inflation

A

spending increases faster than production

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15
Q

cost push inflaton or supply side inflation

A

prices rise because of a rise in production cost

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16
Q

quantity theory

A

too much money in an economy causes inflation

17
Q

who is hirt and helped by unanticipated inflation

A

fixred income groups hirt because their real income suffers
savers hurt because interest rate returns may not cover cost of inflationlenders hurt because they are paid back cheaper dollars
debtors helped

18
Q

inflation premium

A

amount that interest rate is raised to cover effects of anticipated inflation

19
Q

CPI overstates rate of inflation

A

substitution bias
intro of new goods
unmeasured quality changes

20
Q

sub bias

A

basket doesnt change to reflect consumer reactions to price changes(buy cheaper good w prce raises)

21
Q

intro of new goods

A

basket doesnt reflect imprvement of goods that makes dollars more valuable

22
Q

unmeasured quality changes

A

quality changes unmeasured

23
Q

producer price index

A

measures cost of a basket purchased by firms

24
Q

GDP deflator

A

nominal gdp/real gdp x100

25
Q

GDP defltor vs cpi

A

gdp- price of all goods and services produced domestically
cpi- prices of goods and services bought by customers

26
Q

rule of 70

A

we can find doubling time by dividing percentage increase into 70

27
Q

3% doubles in 23 yrs

A

70/3=23

28
Q

calculate real income

A

nominal income this yr/cpi this yr x100

29
Q

adjust wages from previous yr to urrent yr

A

cpi frm this yr/ cpi from previous yr x [revious yr income