lesson 10 - price indices

Question 1

inflation

Answer 1

an increase in overall price level thus reducing the spending power of a dollar

Question 2

inflation rate

Answer 2

the pace in which the overall price is increasing

Question 3

deflation

Answer 3

a sustained decrease in overall price level –> basically negative inflation

Question 4

disinflation

Answer 4

slowing the rate of inflation

Question 5

aggregate price level

Answer 5

a single number that summarizes the prices in an economy

Question 6

price index

Answer 6

a measure that calculates the changing cost of purchasing particulate market baskets each year

Question 7

CPI (Consumer price index)

Answer 7

index that calculates the cost of a market basket of goods purchased by the average family in an urban area

Question 8

market basket

Answer 8

combination of goods

Question 9

base year

Answer 9

a reference year to which variables are compared to

Question 10

real variables

Answer 10

variables that are adjusted for the rate of inflation to represent the true value

e.g you get a raise of 10% but money has decreased by 8% your raise is only 2%

Question 11

nomial variables

Answer 11

variables like wages, income, interest, that are not adjusted

Question 12

purchasing power

Answer 12

what can be bought with your money

Question 13

real interest rate

Answer 13

the rate earned that reflects the actual purchasing power of interest