lectur4-page2 - If your income increases at the same rate...

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Generally, inflation will occur if the money supply increases, ceteris paribus. Deflation will generally occur if the money supply is decreased, ceteris paribus. Inflation is an increase in the general price level of the economy. The “general price level” is an expression representing the "average" level of prices in the economy. Deflation would be a decrease in the general price level of the economy. Most people think of inflation as being something bad. If your income does not increase at the same rate as inflation, then your purchasing power does decrease or erode away.
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Unformatted text preview: If your income increases at the same rate as inflation, then your purchasing power remains unchanged; you are no worse off or better off. If your income increases at a rate greater than inflation, then your purchasing power increases, and you are better off. Real estate has often been termed a hedge against inflation. Real estate values usually increase at or above the rate of inflation. Re-read Chapter 1of Everyday Economics by Dr. Mike Walden. Later, we will address inflation in more depth. Right now, I just want you to have a feel for the concept. 2...
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.

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