Economics 1022A/B Chapter Notes - Chapter 21: Gdp Deflator, Deflation, Hyperinflation

21 views2 pages

pearbat82

10 Jan 2017

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Chapter 21 – Inflation

Price Level – the average level of prices and the value of money

• Changes in price level determined the value of future payments (i.e. loans and

savings)

Inflation – the general increase in the level of prices

• Hyperinflation – rapid inflation where money loses its value very quickly

• Also referred to as the percentage change in CPI

Deflation – the general decrease in the level of prices

Inflation Rate – the % change in prices from one period to another

  

 

Why Inflation and Deflation are Problems:

a. Redistributes income

- Since workers sign wage contracts, when there’s an inflation in prices the workers

wages don’t increase along with the inflation

- Workers are worse off because their wages buy less than they bargained for and

employers are better off because their profits rise (vice versa with deflation)

b. Redistributes wealth

- People enter into loan contracts that are fixed money terms and with an

unexpected burst of inflation the money that the borrower repays to the lender

buys less than the money originally owned

- The borrower wins and the lender loses

c. Lowers real GDP and employment

- Unexpected inflation that raises firm’s profits brings a rise in investment and a

boom in production and employment

d. Diverts resources from production

- Turns the economy into a casino and diverts resources from productive activities

to forecasting activities

CPI

Consumer Price Index – measures the average level of prices of goods and services that

a typical urban Canadian family uses

- CPI reference is 100

- Think of it as a “basket of goods”

- The average a consumer buys in one year

- FIXED basket, where quantity stays constant and prices change

find more resources at oneclass.com

Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

maroonwoodchuck8495771 and 39243 others unlocked

ECON 1022A/B Full Course Notes

Verified Note

27 documents

Document Summary

Price level the average level of prices and the value of money: changes in price level determined the value of future payments (i. e. loans and savings) Inflation the general increase in the level of prices: hyperinflation rapid inflation where money loses its value very quickly, also referred to as the percentage change in cpi. Deflation the general decrease in the level of prices. Inflation rate the % change in prices from one period to another (cid:1855)(cid:1857) (cid:1866) (cid:1857)(cid:1867)(cid:1856) (cid:884) (cid:1855)(cid:1857) (cid:1866) (cid:1857)(cid:1867)(cid:1856) (cid:883) (cid:1855)(cid:1857) (cid:1866) (cid:1857)(cid:1867)(cid:1856) (cid:883) Why inflation and deflation are problems: redistributes income. Since workers sign wage contracts, when there"s an inflation in prices the workers wages don"t increase along with the inflation. Workers are worse off because their wages buy less than they bargained for and employers are better off because their profits rise (vice versa with deflation: redistributes wealth.

Related Questions

Explain whether the following statements are true or false, or uncertain.

a. "Inflation hurts borrowers and helps lenders because borrowers pay a higher rate of interest".

b. "If prices change in a way that leaves the overall price level unchanged, then no one is made better or worse off".

c. "Inflation does not reduce the purchasing power of most workers".

jadebat389

8. Which of the following items is included in the calculation of GDP?

a.Purchase of a used car.

b.Purchase of 100 shares of General Motors stock.

c.Purchase of an intermediate good.

d.None of the above would be included

9. Difference between Real and Nominal GDP is:

a.Change in price level from base year to current year

b.Measured by excluding some of the sectors

c.That real GDP is always smaller than Nominal GDP

d.None of the above

10. GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports are:

a.+$53 billion

b.-$84 billion

c.-$47 billion

d.-$161 billion

11. Equality (As a tool of measurement for quality of life) refers to a balance of Economic and Political Power between which two groups?

a.Homeless and Employed

b.Men and Women

c. Different ethnic groups

d. Rich and Poor

12.What is inflation?

a.A fall in the general level of prices occurs, workers need more money to pay for goods, clothing, and shelter

b.A rise in the general level of prices occurs, workers need more money to pay for goods, clothing, and shelter

c.A rise in the general level of prices occurs, workers need less money to pay for goods, clothing and shelter

d.A fall in the general level of prices occurs, workers need less money to pay for goods, clothing and shelter

13.Which of the following is the best measure of how inflation affects consumers?

A.The increase in the price of gold

B. The increase in the consumer price index

C. The increase in the price of a single product

D. The decrease in the consumer price index

14. The Consumer Price Index (CPI)

a. Measures the rate of output in the economy over one year.

b.Measures the increase in wholesale prices since a base year.

c.Is deficient because it does not include medical prices.

d.Is used to calculate the rate of inflation over a given period.

15.How is the unemployment rate computed?

a. Number of unemployed persons divided by the number of economically active (i.e. employed and unemployed) persons aged fifteen years and over.

b.Number of unemployed persons divided by the number of people aged fifteen years and over.

c.Number of unemployed persons divided by the number of employed persons aged fifteen years and over.

d.None of the above

byzantiumotter67

Question 2

For any given expected inflation rate, short-run aggregate supply curves show the relationship between

the money supply and growth rate of output.

inflation and growth rate of output.

production factors and wages.

inflation and wages.

1 points

Question 3

Why is the SRAS curve steeper above its intersection with the Solow growth curve?

		Wages are stickier in the upward direction.
		Wages are less sticky in the upward direction.
		Lower inflation will lead to faster growth.
		Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

What factors triggered the Great Depression?

		decreased consumer spending and tight monetary policy
		decreased investment and increased inflation
		decreased employment and increased money supply
		decreased inflation and increased income taxes

1 points

Question 5

How might changes in the money supply be non-neutral in the short run?

		As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.
		When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.
		As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.
		If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

remain relatively constant.

increase.

decrease.

become unpredictable.

Question 8

Which of the three price indexes measures the average price level of the largest total number of goods?

		the consumer price index
		the GDP deflator
		the producer price index
		Each price index accomplishes the same task.

The textbook uses the

Economics 1022A/B Chapter Notes - Chapter 21: Gdp Deflator, Deflation, Hyperinflation

ECON 1022A/B Full Course Notes

Document Summary

Get access

Related Documents

Economics 1022A/B Lecture Notes - Lecture 21: Gdp Deflator, Potential Output, Real Income

Economics 1022A/B Lecture Notes - Lecture 2: Income Approach, Xm Satellite Radio, Gdp Deflator

Economics 1022A/B Chapter Notes - Chapter 28: Aggregate Demand, Business Cycle, Potential Output

Related Questions

		the money supply and growth rate of output.
		inflation and growth rate of output.
		production factors and wages.
		inflation and wages.