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29 Cards in this Set

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CPI
for any period, measures the cost in that period of a standard basket of goods and services ralative to the cost of the cost of the same basket of goods and srevices in a fixed year, called the base year
price index
a measure of the average price of a given class of goods and services relative to the price of the same goods and services in a base year
rate of inflation
the annual percentage rate of change in the price level
deflation
a situation in which the prices of most goods and services are falling over time so that inflation is negative
nominal quantity
a quantity that is measured in terms of its current dollar value
real quantity
a quantity that is measured in physical terms
deflating (a nominal quantity)
the process of dividing a nominal quantity by a price index to express the quantity in real terms
real wage
the wage paid to workers measured in terms of real purchasing power
indexing
the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index; prevents the purchasing power of the nominal quantity from being eroded by inflation
price level
a measure of the overall level of prices at a particular point in time as measured by a price idex
relative price
the price of a specific good or service in comparison to the prices of other goods and services
hyperinflation
a situation in which the inflation rate is extremely high
real interest rate
the annual percentage increase in the purchasing power of a financial asset
nominal interest rate
the annual percentage increase in the nominal value of a financial asset
fisher effect
the tendency for nominal interest rates to be high when inflation in high and low
formula for CPI
CPI = cost of base-yr basket of G&S in current yr / cost of base-yr basket of G&S in base yr
formula for real wage
real wage = nominal wage / CPI
true cost of inflation which together tend to reduce the economic growth and efficiency:
1)shoe-leather costs
2)"noise"
3)distortions
4)unexpected redistributions of wealth
5)interference
formula for real interest rate
r = nominal/market interest rate - inflation rate
__________ measures the cost of a standard basket of goods and services in a time period relative to the cost of the same basket of goods and services in the base year.
CPI
In 2002 (the base yr), the price of 100 pencils was $150 and the price of 50 soft drinks was $100. In 2003, the price was $160 and $120 for 100 pencils and 50 soft drinks, respectively. What was the 2003 CPI?
1.12
The annual percentage rate of change in the price level is __________.
inflation
Price index is a measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year. True/False?
true
The CPI in 2003 is 1.05 and 1.08 in 2004, the inflation rate between 2004 and 2003 is 4%. True/False?
false
The income of an average family is $30,000 in 2003. If the CPI in 2003 is 0.909, what is the real income of this family?
$33,003
The average wage rate was $4 in 1975 and $9 in 1990. If the CPI in 1975 was 0.5, and 1.3 in 1990 (1980=base yr), the average real wage is higher in 1975. True/False?
true
__________ is the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index.
indexing
The price of a specific good or service in comparison to the prices of other goods and services is __________.
relative price
Nominal interest rate has the tendency to be high when inflation is high. True/False?
true