201C7ol - CHAPTER 7 - INFLATION -What kind of price...

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-What kind of price increases are referred to as "inflation?" -Who is hurt/helped by inflation? -What is an appropriate goal for "price stability?" -Inflation: An increase in the average level of prices, not a change in any specific price -Deflation: A decrease in the average level of prices -Relative Price: The price of one good in comparison with other goods Example: If car prices fall 3% while the average price level falls 5%, the relative price of cars compared to other goods fall/stays same/increases . (increases) -Micro Consequences of Inflation: 1 - Income effect; 2 - Wealth effect; 3 - Price effect -Nominal vs. Real Income: -Nominal is the amount of money received in a given period measured in current $$$$ -Real is income in constant $$$$, nominal income adjusted for inflation -If inflation is 3% a year and you get a 2% raise: your nominal income rises but your real income falls -"In The News" p. 125 shows how tuition increases reduce the "real" income of students (depends on what you buy)
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201C7ol - CHAPTER 7 - INFLATION -What kind of price...

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