macroeconomics section 3

the goods a typical consumer buys

a measure of all the costs of goods and services used by a typical consumer

formula: (CPIyear2)- (CPIyear1)/(CPIyear2)

# of percentage points annual output lost (or unemployment gained) while reducing inflation by 1% point.

people use all info they have, including info regarding govt policies, when forecasting the future

multiple goods out there, fixed basket overlooks substitution between goods.

A tv today is not that same thing as a TV 50 years ago

New goods. Computer chips, the iPad

suppose you know the prices will increase.  The general effect of anticipated inflation is that people put their money in a bank to earn interest.

• Suppose inflation comes from nowhere
• -decreases ability to purchase goods
• -harms the ability of financial firms to make loans

Shoeleather co