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29 Cards in this Set
- Front
- Back
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CPI
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for any period, measures the cost in that period of a standard basket of goods and services ralative to the cost of the cost of the same basket of goods and srevices in a fixed year, called the base year
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price index
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a measure of the average price of a given class of goods and services relative to the price of the same goods and services in a base year
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rate of inflation
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the annual percentage rate of change in the price level
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deflation
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a situation in which the prices of most goods and services are falling over time so that inflation is negative
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nominal quantity
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a quantity that is measured in terms of its current dollar value
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real quantity
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a quantity that is measured in physical terms
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deflating (a nominal quantity)
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the process of dividing a nominal quantity by a price index to express the quantity in real terms
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real wage
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the wage paid to workers measured in terms of real purchasing power
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indexing
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the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index; prevents the purchasing power of the nominal quantity from being eroded by inflation
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price level
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a measure of the overall level of prices at a particular point in time as measured by a price idex
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relative price
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the price of a specific good or service in comparison to the prices of other goods and services
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hyperinflation
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a situation in which the inflation rate is extremely high
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real interest rate
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the annual percentage increase in the purchasing power of a financial asset
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nominal interest rate
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the annual percentage increase in the nominal value of a financial asset
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fisher effect
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the tendency for nominal interest rates to be high when inflation in high and low
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formula for CPI
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CPI = cost of base-yr basket of G&S in current yr / cost of base-yr basket of G&S in base yr
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formula for real wage
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real wage = nominal wage / CPI
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true cost of inflation which together tend to reduce the economic growth and efficiency:
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1)shoe-leather costs
2)"noise" 3)distortions 4)unexpected redistributions of wealth 5)interference |
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formula for real interest rate
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r = nominal/market interest rate - inflation rate
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__________ measures the cost of a standard basket of goods and services in a time period relative to the cost of the same basket of goods and services in the base year.
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CPI
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In 2002 (the base yr), the price of 100 pencils was $150 and the price of 50 soft drinks was $100. In 2003, the price was $160 and $120 for 100 pencils and 50 soft drinks, respectively. What was the 2003 CPI?
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1.12
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The annual percentage rate of change in the price level is __________.
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inflation
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Price index is a measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year. True/False?
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true
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The CPI in 2003 is 1.05 and 1.08 in 2004, the inflation rate between 2004 and 2003 is 4%. True/False?
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false
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The income of an average family is $30,000 in 2003. If the CPI in 2003 is 0.909, what is the real income of this family?
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$33,003
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The average wage rate was $4 in 1975 and $9 in 1990. If the CPI in 1975 was 0.5, and 1.3 in 1990 (1980=base yr), the average real wage is higher in 1975. True/False?
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true
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__________ is the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index.
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indexing
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The price of a specific good or service in comparison to the prices of other goods and services is __________.
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relative price
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Nominal interest rate has the tendency to be high when inflation is high. True/False?
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true
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