Inflation
-Inflation is a general rise; a significant drop is called hyper-inflation.
-Deflation is a fall of price level
-*Real GDP is adjusted for inflation*
-The value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can't buy the same goods it could beforehand.
- CPI 1 = old CPI
- CPI 2 = new CPI
- Cost-Push Inflation
- higher production cost increases prices
- ex: higher wages, taxes, or cost of imports force companies to increase prices in order to maintain profit margins.
- ex: lower crop production due to bad weather could cause prices on such crops to rise
- usually results in a supply shock
- Demand-Pull Inflation
- too many dollars chasing too few goods
- demand grows faster than supply, causing prices to increase
- ex: if concert prices are only $20 and there is a high demand, the price will go up
- Political Panics
- two causes: recession and depression
Hey Antonette! Although your notes are great, your missing just a couple of things so you should include the following:
ReplyDeleteThe formula for market baskets is also used to
-Measure the cost of the market basket of goods of a typical urban American family (Excluded:welfare, people who recieve help from the govt)
You should also include examples of inflation such as:
(Ex: Price of dish increase, less frequency of customer visits)
(Ex: Gas price changes)
Finally you're missing one small tidbit of info regarding inflation.
A significant drop is considered hyper inflation.
Hooe this helps!
Thank you for your feedback! I updated the post and added some examples :)
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