Inflation Practice

Inflation Rate Formula

(CPI in new year - CPI in old year) / CPI in old year x100

Calculation of Inflation Rate: CPI is 180 in 1998, it is 213.4 in 2010. What is the inflation rate during this time?

18.56%

Calculation of Inflation Rate: CPI is 150 in 1998, base year is 1990. What is the inflation rate during this time?

50%

Calculation of Inflation Rate: CPI is 173 in 2000, it was 91.2 in 1989. What is the inflation rate during this time?

89.69%

Phillips Curve

A graph showing the relationship between inflation and unemployment . The theory states that unemployment can be reduced in the short run by increasing price level (inflation) at a faster rate. Conversely, inflation can be lowered at the cost of possibly increased unemployment and slower economic growth

Cost-Push Inflation

A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

Inflation

A rise in the general level of prices in an economy.

Aggregate Demand

A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.

Deflation

A situation in which prices are declining

Hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation.

CPI

An index of the cost of all goods and services to a typical consumer (price of the market basket)

Aggregate Supply

Supply of ALL goods and services within a country

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

Ideal Inflation Rate

an inflation rate that policy makers would like to achieve because it minimizes the costs to society of changing prices; usually thought to be between 2 and 3 percent

Real Dollars

dollars that are adjusted in a way that removes the distortion of inflation

Demand-Pull Inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand