chapter 7: inflation
real income
income in constant dollars; nominal income adjusted for inflation
hyperinflation
inflation in excess of 200 percent, lasting at least one year
percent change in CPI equation
item weight x percentage change in price of item = percentage change in CPI
real GDP equation
real GDP = nominal GDP / GDP deflator x 100
real interest rate equation
real interest rate = nominal interest rate - anticipated rate of inflation
price stability
the absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3 percent
nominal income
the amount of money income received in a given time period, measured in current dollars
inflation rate
the annual percentage rate of increase in the average price level
bracket creep
the movement of taxpayers into higher tax brackets (rates) as nominal incomes grow
real interest rate
the nominal interest rate minus the anticipated inflation rate
item weight
the percentage of total expenditure spent on a specific product; used to compute inflation indexes
relative price
the price of one good in comparison with the price of other goods
inflationary flashpoint
the rate of output at which the inflationary pressures intensity; the point on the AS curve where slope increases sharply
money illusion
the use of nominal dollars rather than real dollars to guage changes in ones income or wealth
real GDP
the value of final output produced in a given period, adjusted for changing prices
nominal GDP
the value of final output produced in a given period, measured in the prices of that period (current prices)
base year
the year used for comparative analysis the basis for indexing; price changes
deflation
a decrease in the average level of prices of goods and services
GDP deflator
a price index that refers to all goods and services included in GDP
ARM
adjustable-rate mortgage; a mortgage (home loan) that adjusts the nominal interest rate to changing rates of inflation
inflation
an increase in the average level of prices of goods and services
core inflation rate
changes in the CPI, excluding food and energy prices
CPI
consumer price index; a measure (index) of changes in the average price of consumer goods and services
COLA
cost-of-living adjustments; automatic adjustments of nominal income to the rate of inflation