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20 Cards in this Set
- Front
- Back
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INFLATION |
An increase in the general price level. Inflation means that money loses its value over time, so you cannot buy as much with the income you receive. |
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DEFLATION |
When the general level of prices fall. |
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DISINFLATION |
When the RATE of inflation falls. Occurs when prices are still in positive numbers, but they are not rising as quickly as they were. |
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NOMINAL VALUE |
The value of dollars at the time they were spent or earned. |
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REAL VALUE |
A nominal value adjusted for the effect of changes in the price level. Inflation causes money to lose value over time. |
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QUANTITY THEORY OF MONEY |
The QTOM is an economic model that shows the link between the amount of money circulating in the economy and prices. |
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QTOM EQUATION |
MV = PQ |
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MONEY SUPPLY (M) |
The value of finds circulating. |
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VELOCITY (V) |
The rate at which money is spent. |
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PRICE LEVEL (P) |
The average price of all goods produced in the economy. |
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REAL OUTPUT (Q) |
The level of production (or output) in the economy. |
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TOTAL SPENDING |
M x V |
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TOTAL VALUE OF PRODUCTION |
P x Q |
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DEMAND PULL INFLATION |
Demand pull inflation is a result of an increase in the aggregate demand. The increase cause the AD curve to shift to the right and as a result, there is an increase in the price level. |
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AGGREGATE DEMAND = |
C + I + G + (X - M)
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CONSUMPTION INCREASE IF: |
Incomes rise, Income taxes fall, Interest rates fall, Inflationary expectations increase. |
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INVESTMENT INCREASE IF: |
Interest rates fall, Business confidence rises |
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EXPORTS INCREASE IF: |
The exchange rate falls. |
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COST PUSH INFLATION |
Cost push inflation is a result of a decrease in the aggregate supply. The decrease causes the AS curve to shift to the left and as a result, there is an increase in the price level. |
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AGGREGATE SUPPLY = |
The total supply of all goods and services in the economy. |
