chapter7 - Inflation Chapter 7 Inflation: An increase in...

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Inflation Chapter 7 Inflation: An increase in the average level of prices of goods and services Deflation: A decrease in the average level of prices of goods and services Relative price: The price of one good in comparison with the price of other goods Nominal income: The amount of money income received in given time period, measured in current dollars Real income: Income in constant dollars; nominal income adjusted for inflation 1. Not all prices rise at the same rate during an inflation 2. Not everyone suffers equally from inflation Price effects: Those who buy products that are increasing in price the fastest end up worse off Income effects: People with nominal incomes rising more slowly than inflation end up worse off Wealth effects: Those who own assets that are declining in real value end up with less wealth Money illusion: The use of nominal dollars rather than real dollars to gauge changes in one’s income or wealth Hyperinflation: Inflation rate in excess of 200 percent, lasting at least one year
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chapter7 - Inflation Chapter 7 Inflation: An increase in...

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