Macro Chapter 11 and 12
baby boomers
are the people born during the high birthrate years, 1946-1964
deflation
is a decrease in the average level of prices (a negative inflation rate)
real price
is a price that has been corrected for inflation real prices are used to compare the prices of goods over time
disinflation
is a reduction in the inflation rate
inflation
is an increase in the average level of prices
velocity of money
is the average number of times a dollar is spent on final goods and services in a year
nominal rate of return
is the rate of return that does not account for inflation
Fischer effect
is the tendency of nominal interest rates to rise with expected inflation rates
monetizing the debt
is when the government pays off its debts by printing money
When an economy experiences volatile and unpredictable hyperinflation:
it causes a breakdown of financial intermediation
Suppose a nation's CPI is 150 in year 1 and 180 in year 2. What is the inflation rate?
(180-150)/150 = 20%
Labor force participation rate =
(Unemployed + employed) / adult population * 100
What determines the labor force participation rate?
- lifecycle effects and demographics - incentives
natural unemployment rate
-is the rate of structural plus frictional unemployment -natural rate changes slowly through time -the actual rate of unemployment varies around the natural rate
Producer price index(PPI)
-measures the average price received by produces - measures prices of intermediate as well as final goods
GDP deflator
-the ratio of nominal to real GDP multiplied by 100. -covers all final goods
Inflation can reduce the real return hat lenders receive on their loans, in effect transferring wealth from borrowers to lenders. True or False
False its lenders to borrowers
Disinflation occurs when the overall price level:
rise at a decreasing rate
The velocity of money is:
the average number of times a dollar is spent on final goods and services
the case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:
the government monetizing the debt
real rate of return
the nominal rate of return minus the inflation rate
inflation rate
the percentage change in the average level of prices over a period of time (P2 - P1 / P1) *100
From 2003 to 2013, the US experienced average annual inflation of about:
2.4%
In times of financial panic, we expect the velocity of money to: A. increase B decrease C. remain relevantly the same D. first increase and then decrease
B. decrease
inflation generally causes the taxes paid by individuals and business firms to: A. remain relatively the same B. increase C. decrease D. become less of a burden
B. increase
Between 1960 and 1990, Argentina's one supply grew at approximately 80%. According to the quantity theory of money, inflation rates in Argentina should have been approximately _______ during this period. A. 20% B. 40% C. 80% D. 160%
C. 80%
which price index measures the average price received by suppliers? A. the consumer price index B. the GDP deflator C. the producer price index D. the wholesale price index
C. the producer price index
What happens to workers who contract for cost of living allowance of 10% a year when the inflation rate falls to 4%?
They become more costly to employ and may lose their jobs
a real price is:
a price that has been corrected for inflation
what is the cause of inflation?
an increase in money supply
The concept of money illusion refers to:
consumers with inflation-indexed wages seeing a rise in prices and believing that their purchasing power has been compromised.
episodes of hyperinflation are caused by:
extremely high rates of money growth
Consumer price index (CPI)
measures the average price for a basket of goods and services bought by a typical American consumer
Cyclical unemployment
unemployment correlated with the ups and downs of the business cycle
money illusion
when people mistake changes in nominal prices for changes in real prices.
