● Headline inflation is the inflation you see in headlines. It includes food and energy prices, so it more so refelcts the typical change in the cost of living of a typical household year by year. ● Real wages compares how much you could spend of your wages (taking inflation into consideration) at another time. Real wages help people understand purchasing power. To figure this out one would (wage of period A)*(CPI of period b)/ (CPI of period a). To figure out what the purchasing power of your old wage would be now, you subtract the purchasing power of your old wage from your new wage. ● If the inflation rate goes up and workers real wage remains the same, then that means that their real wage fell ● Real prices remove the inflation from nominal prices through subtraction and division. If you are looking for real prices from year to year you would use subtraction, but if you are looking for nominal prices you would use division. In subtraction you use the percent change in real set equal to the percent change in nominal minus inflation. When you are looking for nominal prices, you divide the CPI’s of the years and multiply it by the cost in respect to the demoninator. ● Real interest rates correct nominal interest rates but subtracting inflation from the nominal. This provides a better measure of true cost of borrowing and lending money. ● The GDP deflator will increase with inflation, decrease with deflation and with disinflation tens to decrease for short term but just a small reduction of general price level ● In inflation cpi will increase as it shows how inflation will affect typical households PP. In short term, CPI will be higher with deflation but long term will lead to decrease in everything could possibly result in depression. In disinflation nothing really changes, prices are still rising but the inflation rate isn’t as high.