Lesson 67 pg. 187 - 189

Question 1

What are the two types of inflation?

Answer 1

> demand-pull inflation

>cost-push inflation

Question 2

Describe demand-pull inflation

Answer 2

> caused when demand becomes greater than the supply, resulting in shortages
rising costs of goods cause workers to demand more pay so that they can afford these goods, while businesses pay for these wage-hikes by further increasing the prices of goods

Question 3

Describe cost-push inflation

Answer 3

> triggered when businesses face rising production costs, forcing them to increase prices they charge for their goods
rising costs of goods cause workers to demand more pay to that they can afford these goods, while businesses pay for these wage-hikes by further increasing the prices of goods

Question 4

Describe Consumer Price Index (CPI)

Answer 4

> one of most common tools for measuring growth of inflation in United States
based on average price consumers have to pay to purchase a specific “market basket” of goods and services

Question 5

What is the base period?

Answer 5

> prices are compared to the base period, which is arbitrarily given value of 100 percent

Question 6

Define stagflation

Answer 6

stagflation - economic condition in which high inflation is combined with high unemployment, resulting in stagnation of productivity

Question 7

Define supply-side economics

Answer 7

supply-side economics - the theory that reduction of taxes makes more money available for private investment in capital and research, thereby increasing productivity