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.