Economics Unit 3

Inflation

Increase in the overall price level of goods/services

• The purchasing power of money is reduced.

Demand Pull

Increased consumer demand causes shortages and price increases.

Cost Push

Due to increased production costs decreasing supply.

Wage Price Spiral

Demand pull and cost push inflation cycle over time.

• Too rapid spiraling would cause “hyperinflation”

• Prices rise faster than wages

Disinflation

Decrease in the rate of inflation

Deflation

Decrease in the overall price level.

Market Basket

Examines prices of a mix of goods/services to measure changes in the value of money (inflation/deflation)

Consumer Price Index “CPI”

Measures inflation by comparing prices over time to a base year.

• (Current / Base ) x 100 = Index #

• The difference in the index # is the rate of inflation

Inflation reduces the purchasing power of money. Each dollar buys less goods and services as prices rise

Nominal Dollars

Stated amount of money, “face” value or dollar amount.

Real Value

reflects the actual purchasing power of money, fluctuates with prices.

Convert Real (Base Year) to Nominal

Real = (Nominal / CPI) x 100

Savings

Delay of purchasing power for future use, sacrificing real value

• Inflation reduces the future rreal value of savings.

Debt

Use of purchasing power in advance. Borrow current real value to be repaid in the future (with interest)

• Principal and interest on fixed rate loans remain steady as prices rise.

• Loans may be repaid with future, “cheaper” Nominal money that is worth less.

Pell Grants

“gift aid” that does not need to be repaid. Need based determined by family size, income and cost of attendance.

• Many other public/private grants are available, specific to academic focus.

Subsidized Loans

Need based determined by family size, income and cost of attendance. Interest DOES NOT accrue until 6 months after graduation. Up to a 10 year repayment term.

Unsubsidized Loans

Amount based on cost of attendance and total aid. Interest accrued from inception (repayment for up to 10 years, 6 months post graduation).

Reserve Officers Training Corps

“ROTC” - contracted or non-contracted to serve (4+4 active/reserve years) in the military in exchange for scholarship.

Work Study

Need based (income,family,cost) part time work on/off campus to offset college costs.

Scholarships

*Do not have to be repaid. May be school based or privately awarded.

Athletic Scholarship

for D1, D2, NAIA and JUCO athletes recruited to participate in intercollegiate sports. May be full or partial.

Merit Scholarships

school based/private funding based on grades/activities.