ECON102 Chapter Notes - Chapter 11: Nominal Interest Rate, Gdp Deflator, Real Interest Rate

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Maryann Vaughan

Document Summary

Inflation increase in the overall price level. Economists measure inflation rate as the percentage change in the consumer price index, the gsd deflator, or some other price index. Hyperinflation is an extremely high rate of inflation, such as in zimbabwe where it is roughly 24 000%. We"ll begin by examining the classic theory of inflation. Suppose we observe the price of a cone of ice cream over time. We see the price go from a nickel to a dollar. Its more likely that people"s enjoyment of the ice cream has stayed the same, but overtime, the money used to buy the ice cream has become less valuable. Insight #1 inflation is more about the value of money than the value of goods. Inflation is an economy-wide phenomena that concerns, first and foremost, the value of the economy"s medium of exchange (money) This means that even in a cpi when or if we look at individual prices, inflation affects all goods.