LECTURE 9.22 INFLATION

LECTURE 9.22 INFLATION - LECTURE 4: Inflation 9/22/11...

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LECTURE 4: Inflation 9/22/11 Inflation o Persistent and continuous rise in the overall level of prices of a large number of goods and services o Rise in prices not accompanied by an improvement in quality o Who gets hurt All consumers, especially those who are poor and those on fixed incomes CPI o Consumer Price Index – measures price changes month to month o Index of the average change in prices of hundreds of products and services from a typical fixed “market basket” bought by typical consumers o Often mistakenly called measure for cost of living o However CPI does not reflect changes in buying or consumption Consumers can substitute cheaper items Elderly consumers do not purchase new housing, etc. Effects of Inflation o Hidden tax o Encourages deterioration of quality/short measuring o Upsets consumers’ financial planning o Borrowing money costs more o Diminishes value of insurance coverage o o Investors shy away from new ventures
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LECTURE 9.22 INFLATION - LECTURE 4: Inflation 9/22/11...

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