Inflation
- rise in the general level of prices
Measuring
Inflation:
Inflation
rate - measures the percentage increase in the price level over
time (offers key indicator of economies health)
a) Deflation
- A decline in the general price level
b) Disinflation
- It occurs when the inflation rate itself declines
Consumer price index - measures inflation by tracking the yearly price of a fixed basket of consumer goods and services ; indicates changes in the price level and cost of living
Solving inflation Problems
A) finding
inflation rate by using market basket data
(Current
year market basket value - base year market basket value / base year market
basket value ) x 100
B) Finding
inflation rate using Price indexes
(Current
year price index - base year price index / base year price index )x 100
Estimating inflation using the rule of 70 - used to calculate the
number of years it will take for the price level to double at any given rate of inflation
Years needed to double inflation = 70/ annual inflation rate
Determining real wages = nominal wages / price level ) ×100
Finding real interest rates = nominal interest rate - inflation premium
Standard for inflation:
Real interest rates - Cost of borrowing or lending money that is adjusted for expected inflation (expressed as a percentage)
Nominal interest rate - Unadjusted cost of borrowing or lending money
Causes of inflation:
Demand pull inflation - caused by excess of demand over output that pulls prices upwards
Cost pushed inflation - Caused by a rise in per unit production cost due to increasing resource cost
Effects of inflation: Anticipated vs. Unanticipated
Inflation Helps: Borrowers because debt will be repaid with cheaper dollars than those that were loaned out; Fixed Contract
Inflation
Hurts: Fixed income; Savers; Lenders / creditors
Your notes are very thorough but I would recommend that you use some sort of outline to keep your notes more organized so that they are easier to read. Also, I noticed that you forgot to include how in anticipated inflation wages may be adjusted to accommodate for the increase in prices.
ReplyDeleteI like the way you organized your notes but I think that you should explain at least a little bit about anticipated and unanticipated inflation. You could mention that anticipated is normally talked about in the news prior to it happening, while unanticipated just happens suddenly which affects more people. You could also state that the ones hurt and helped are by unanticipated inflation not anticipated inflation.
ReplyDeleteyour notes are easy to follow and have all the key points needed. although for future reference i would say you should do better to separate each grouping of notes so that readers in a rush can more effectively skim thru
ReplyDelete