7.5

1-3%

what is a sustainable inflation rate?

fixed income

income that does not increase even when prices go up

inflation rate

the percentage rate of change in price level over time

wage-price spiral

the process by which rising wages cause higher prices, and higher prices cause higher wages

deflation

a sustained drop in the price level

inflation

a general increase in prices across an economy

price index

a measurement that shows how the average price of a standard group of goods changes over time

consumer price index

a price index determined by measuring the price of a standard group of goods meant to represent the "market basket" of a typical urban consumer

market basket

a representative collection of goods and services

Inflation affects purchasing power by when the price of something rises, the purchasing power of money decreases.

how does inflation impact purchasing power?

updated cost divided by base-period cost and then multiplied by 100

how is consumer price index calculated

hyperinflation

inflation that is out of control

purchasing power

the ability to purchase goods and services

Growth of Money Supply: If there is too much money in the economy, there will be inflation (quantity theory); To keep stable prices, you must increase the supply of money when the economy is growing Changes in Aggregate Demand: the amount of goods and services in the economy that will be purchased at all possible price levels; inflation happens when demand is greater than available supplies Changes in Aggregate Supply: when producers raise prices in order to meet increased costs there will be inflation

what are the causes of inflation

Effects on purchasing power: the amount a dollar is worth is going to change from year to year when inflation occurs Effects on income: when inflation occurs, depending on the occupation, you may or not be making more money Effects on interest rates: depending on inflation rate will determine if those who have money in the bank will earn or lose money through interest

what are the three effects on inflation

Economists -Use it to compare it to different price indexes in the past Consumers -Use it to determine how much they need to save and/or spend depending on the time Government -Use it to determine what to do when making policy decisions

what is the purpose of price indexes