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Inflation
An increase in the general (average) price level of goods and services in the economy.
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Deflation
A decrease in the general (average) price level of goods and services in the ecomony.
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Consumer Price Index (CPI)
- An index that measures changes in the average prices of consumers goods and services.
- Formula:
- cost of market basket @ current year / same cost @base year X 100
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Disinflation
A reduction in the rate of inflation
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Nominal Income
The actual # of dollars received over a period of time
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Real Income
- The actual # of dollars received (nominal income) adjusted for changes in the CPI
- Formula:
- nominal income / CPI (fracction or (CPI/100))
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Income equivalents' formula
- saalary in given year =
- salary inprevios year X (CPI in given year / CPI in previous year)
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Wealth
The value of the stocks of assets owned at some point in time. Ex: bank accounts, real state, bonds, stocks,cash,etc.
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Nominal Interes Rate
The actual rate of interest without adjustment for the inflation rate.
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Real Interest Rate
The nominal rate of interest minus the inflation rate.
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Adjustable-rate mortgage (RAM)
A home loan that adjust the nominal interest rate to changes in an index rate, such as rates on Treasury securities.
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Demand-pull inflation
A rise in the general price level resulting from an excess of total spending (demand)
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Cost-push inflation
An increase in the general price level from an increase in the cost of production.
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Hyperinflation
An extremely rapid rise in the general price level.
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Wage-price spiral
Asituation that occurs when increases in nominal wage rates are passed on in higher price, which, in turn, results in even higher nominal wage rates and prices.
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