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20 Cards in this Set

  • Front
  • Back

Inflation Rate


rate at which average price is increasing over time (period to period percentage increase in average price)

Two Types of Inflation

Demand pull; Cost Push

Two reasons for growth in the economy

Capital accumulation (more capital per co worker); technical progress (less costly ways of producing goods)

Demand Pull Inflation


When the % change in AD (aggregate demand) over time is greater than the % change in AS (aggregate supply) over time...


AD>AS


*creates increase in price

EQN of exchange


MV=PQ


*% change in money supply + % change in velo = % change in Avg Price + % change in production

How can a country bring inflation rates down?

easy, just lower the growth rate of money supply

Hyperinflations

when the monetary authority allows the money supply to increase at astronomical rates

what increases with inflation rates

Velocity

Phillips Curve

an inverse relationship between a countrys unemployment rate and its inflation rate

what causes for cost push inflation

higher production costs or decreases in AS (aggregate supply) over time

what causes higher production costs

higher input prices (higher wage, energy prices, material prices, etc.)

what does real wage indicate

the goods and services that can be purchased witht the nominal wage

Nominal Wage

sum of money an individual is paid for supplying one unit of labor = (Hourly Wage)

calculate real wage


Wage/Price of single product

Deflating

any procedure for canceling out the effect of average price of something

How to adjust nominal wage


(Nominal wage / CPI) x 100

Unemployment Equation

U = (QLS - QLE)/QLS x 100%

Cyclical Unemployment


A woker laid off and then not willing to come back to employment, (usually because of lower wages; often from a recession)


*voluntarily unemployed

natural unemployment

the unemployment rate when the labor market is in equilibrium


(lowest unemployment rate acceptable without institutional changes)

How to eliminate Cyclical Unemployment

use monetary and fiscal policies