IB Econ 2.3 - Hyperinflation

Disinflation

Occurs when the rate of inflation is falling. The general price level if rising, but by smaller amounts than before. (eg. 2005 = 3.5% and 2006 = 2.5%)

Consumer Price Index (CPI)

An indicator of the level of inflation. It is found by measuring the price of a standard group of goods meant to represent the "basket" of a typical household.

Bartering

Instead of using money, people exchange goods and services for other goods and services.

Quantitative Easing

When a central bank like the Bank of England creates new money electronically to make large purchases of assets. Similar to 'printing money'.

Cost Push Inflation

When sellers increase prices to compensate for their increased costs of production, they pass the cost onto consumers. Generally caused by increases in SRAS.

External Shock

A potential trigger of hyperinflation. The oil price crash of 2014 is a good example of this.

Deflation

A sustained fall in the general level of prices overtime. (eg -2%)

Inflation

A sustained or persistent increase in the average price level over time as measured by the Consumer Price Index (CPI)

Monetary Policy

Government policy that attempts to manage the economy, through a central bank which by controlling the money supply and thus market interest rates.

Real Income / Real Wages

Income that is adjusted for the reduction in purchasing power caused by increase inflation. Reflects the true or underlying value of income or wages.

Hyperinflation

Severe and prolonged inflation that results in the value of money losing its acceptability as a medium of exchange. One definition of this term is a monthly inflation rate of 50% or more.

Robert Mugabe

The President of Zimbabwe who led the country through a period of hyperinflation during the early 2000s.

Nicolas Maduro

The current President of Venezuela who is overseeing extremely high levels of inflation.

Money Supply

The entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time.

Inflationary Spiral

The rapid increase in average price level resulting from demand-pull inflation leading to higher wages, causing cost push inflation.

Rate of inflation

The rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis

Demand Pull Inflation

When any increase in Aggregate Demand (C+I+G+X-M) leads to increases in the general price level. Usually caused by a scarcity of the factors of production as the economy nears its Long Run Potential.