Chapter7 - Chapter 7 Inflation CHAPTER SUMMARY Inflation is...

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Chapter 7 Inflation CHAPTER SUMMARY Inflation is a problem most pronounced during the recovery phase of the business cycle. Inflation can be measured by a consumer price index (CPI). The CPI is calculated by dividing the current year's market basket of goods and services by some base year's prices. The U.S. has had varying inflation rates but have been generally stable relative to other countries' inflation rates. The consequences of inflation include reducing some people's real income if their nominal incomes don't increase as fast as the inflation rate; it can also affect wealth; and it reduces real interest rates if nominal interest rates increase less than the inflation rate. The two basic types of inflation are demand-pull and cost-push. It is important to know which type of inflation is being experienced because each type may require a different policy prescription to combat. We are generally more effective in combating demand-pull than cost-push inflation. If we experience run-away inflation then we are suffering from hyperinflation.
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Chapter7 - Chapter 7 Inflation CHAPTER SUMMARY Inflation is...

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