L11 Econ 1021 Lecture Notes - Lecture 2: Nominal Interest Rate, Hyperinflation, Real Interest Rate
17 Aug 2016
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Document Summary
Quantities that are measured in dollars (or other currency units) and then adjusted for inflation are called real quantities. Cpi = (cost of base-year basket of goods and services in current year)/(cost of base-year basket of goods and services in base year) The base-year cpi is always equal to 1. Price index: a measure of the average price of a given quality of goods or services relative to the price of the same goods or services in a base year. Rate of inflation: the annual percentage rate of change in the price level, as measured, for example, by the cpi (new cpi - old cpi)/old cpi. Deflation: a situation in which the prices of most goods and services are falling over time so that inflation is negative. Core rate of inflation: the rate of increase of all prices except energy and food. Energy and food are frequently responsible for short-run fluctuations in the inflation rate.
