CPI, Inflation, Real and Nominal Interest Rates, Deflation (chapter 5)

Inflation

A general, sustained, upward movement of prices

Deflation

A persistently falling price level

Market Basket

A typical array of goods bought over a given period of time

Substitution Bias

Adjusting what we buy and substituting goods

New Basket Cost/Base Year Cost x 100

How do you find the CPI?

Core inflation

Inflation without good and energy prices

Negative Real Interest Rate

Someone is paying you to take their money

False

True or False: Deflation does not effect things such as pensions and retirement

True

True or False: Deflation hurts those PAYING fixed amounts such as employers and borrowers

True

True or False: Deflation occurred in the US in 2009 and Japan in the 90's and 2013

False

True or False: During inflation, all prices rise together

True

True or False: The CPI of the base year is ALWAYS 100

True

True or False: Unlike unemployment, inflation effects EVERYONE

Fisher Hypothesis

What is it called when the real interest rate is independent of monetary measures, specifically the nominal interest rate and the expected inflation rate

CPI (Consumer Price Index)

a measure of the average of the prices paid by urban consumers for a fixed basket of consumer goods and services