Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
21 Cards in this Set
- Front
- Back
|
What is Inflation?
|
An increase in the general (average) price level of goods and services in the economy.
|
|
|
What is Deflation?
|
A decrease in the general (average) price level of goods and services in the economy.
|
|
|
What is the Consumer Price Index (CPI)?
|
An index that measures changes in the average prices of consumer goods and services.
|
|
|
What is Disinflation?
|
A reduction in the rate of inflation.
|
|
|
If the quality of a product increases, does the CPI under or overstate inflation?
|
It OVERSTATES inflation!
|
|
|
Does Inflation expand or shrink income?
|
SHRINKS income!
|
|
|
What is Nominal Income?
|
The actual number of dollars received over a period of time.
|
|
|
What is Real Income?
|
The actual number of dollars received (nominal income) adjusted for changes in the CPI.
|
|
|
Percentage change in real income is equal to what?
|
Percentage change in nominal income minus percentage change in CPI
|
|
|
What is Wealth?
|
The value of the stock of assets owned at some point in time.
|
|
|
Do the people whose nominal incomes rise faster than the rate of inflation lose or gain purchasing power?
|
Gain purchasing power!
|
|
|
Do people whose nominal income does not keep pace with inflation lose or gain purchasing power?
|
LOSE purchasing power
|
|
|
What is Nominal Interest Rate?
|
The actual rate of interest without adjustment for the inflation rate.
|
|
|
What is Real Interest Rate?
|
The nominal rate of interest minus the inflation rate.
|
|
|
What is the Adjustable-Rate Mortgage?
|
A home loan that adjusts the nominal interest rate to changes in an index rate, such as rates on Treasury securities.
|
|
|
When the real rate of interest is negative, do lenders and savers lose or gain? Why?
|
They lose because interest earned does not keep up with the inflation rate!
|
|
|
What is Demand-Pull Inflation?
|
A rise in the general price level resulting from an excess of total spending (demand).
|
|
|
What is Cost-Push Inflation?
|
An increase in the general price level resulting from an increase in the cost of production.
|
|
|
What is Hyperinflation?
|
An extremely rapid rise in the general price level.
|
|
|
What are the 4 main consequences of Hyperinflation?
|
1. Inflation psychosis
2. Jeopardized debtor-lender contracts 3. Wage-Price Spiral 4. Speculative investments |
|
|
What is Wage-Price Spiral?
|
A situation that occurs when increases in nominal wage rates are passed on in higher prices, which, in turn, result in even higher nominal wage rates and prices.
|
