ECON-2000 Lecture Notes - Lecture 29: Disinflation, Deflation, Hyperinflation
Document Summary
Inflation: continuing rise in the general price level: measured as a growth rate in the average level of prices, deflation: opposite of inflation, price level falls, disinflation: a decline in the positive rate of inflation (not negative inflation) Biggest problem of inflation: uncertainty about price changes creates problems for firms and workers, long-term wages difficult to agree upon, customers may change buying patterns due to uncertainty. Historical average of inflation rate: 4, was over 14. 5% between april 1979 and march 1980, since 1983, average inflation rate has been <3, negative inflation has only occurred around great recession. Prices don"t all move together: most prices rise over time. Travel, education, healthcare: some prices can go down over time. 1997 flat screen tv ~ vs 2012 flat screen tv ~. Cpi accuracy: cpi might overcompensate for what inflation actually is (called upward bias) here are some reasons why, substitution: when the price of a rises, we buy more b.
