ECO 304L Chapter Unit 3: Ch 9-12, 16: Measuring Prices and Inflation
7 Oct 2017
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Measuring prices and inflation: defining inflation and its costs, movements in all prices versus movements in relative prices: macro vs. micro perspective, prices change all the time, but not all price changes are inflation. Inflation occurs when most prices in the economy tend to rise together. Sometimes economies experience deflation, that is, the systematic decline of most prices. Great recession, but this probably had to do more with fluctuations of energy prices than anything else. Of course, they would rather pay lower prices for the goods and services they buy, other things equal. But other things are not likely to be equal in an inflationary environment: consider the example of what economists might call a neutral inflation. This is a situation in which all prices are rising at exactly the same rate. These prices include, importantly, individuals" wages and salaries. They would also include other income categories like profits and rents.
