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29 Cards in this Set
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 Back
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 baseyr basket of G&S in current yr / cost of baseyr 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)shoeleather 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
