ec-30 - The effects of inflation on individuals depend...

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Chapter 7 Class (2) I. Inflation: the cost a. Purchasing power b. The value of money for buying goods and services c. Varies with prices and income d. The value of a single dollar decreases e. Too much money chasing too few goods II. Inflation: measuring a. Measuring inflation i. Price index 1. The cost of today’s market basket of goods expressed as a percentage of the cost of the same market basked during a base year 2. = (Cost Today of Market Basket)/(Cost of Market Basket in base year) * 100 III. Inflation: types of indices a. Real-world price indexes i. Consumer Price Index (CPI) 1. Most prevalent ii. Producer Price Index (PPI) iii. GDP Deflator ** 1. The quantity in the basket can change IV.Inflation: Nominal vs. Real a. Nominal value i. Price expressed in today’s dollars
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b. Real value i. Value expressed in purchasing power V. Inflation: expectations a. Anticipated versus unanticipated inflation i. The effects of inflation on individuals depend which type of inflation
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Unformatted text preview: The effects of inflation on individuals depend which type of inflation exists VI.Inflation: nominal vs. real interest rates a. Inflation and interest rates i. Nominal rate of interest 1. The market rate of interest expressed in today’s dollars ii. Real rate of interest 1. The nominal rate of interest minus the anticipated rate of inflation VII. Inflation: winners & losers a. Unanticipated positive inflation i. Creditor loses ii. Debtors gain VIII. Inflation: protecting yourself a. Cost-of-living (COLAs) i. Clauses in contracts that allow for increases in specified nominal values to account for changes in the cost of living IX.Business Fluctuations a. The ups and downs in overall business economic activity i. Economic growth ii. Employment iii. Price level X. Business fluctuations a. Expansion b. Contraction c. Recession d. Depression...
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