Business Cycles, Unemployment, and Inflation

Flashcards covering key concepts related to business cycles, unemployment, and inflation.

Inflation

The general (average) rise in the price level of goods and services.

Purchasing Power

The amount of goods and services that one dollar can buy; decreases as inflation increases.

Consumer Price Index (CPI)

An index used to measure the average level of inflation that represents all goods and services purchased by a typical urban family.

Real Income

Income that is adjusted for inflation.

Nominal Income

Income that is not adjusted for inflation.

Hyperinflation

Extremely rapid inflation, typically exceeding 100% in any given year.

Demand-Pull Inflation

Inflation caused by excessive demand when the economy approaches the natural rate of unemployment.

Cost-Push Inflation

Inflation that occurs when resource costs increase and businesses pass on those increases to consumers in the form of higher prices.

Deflation

A decrease in the general price level of goods and services.

Stagflation

An economic condition characterized by slow growth and high inflation.

PPI (Producer Price Index)

An index that measures the average change over time in selling prices received by domestic producers of goods and services.

Core Inflation

The rate of inflation excluding food and energy prices.

Four Types of Inflation

Includes hyperinflation, inflation, disinflation, and deflation.

Shortcomings of the CPI

Quality changes not considered, bundle of goods may differ from market basket, and substitution effects not accounted for.

Real Interest Rate

The interest rate after adjusting for inflation.

Nominal Interest Rate

The interest rate before adjusting for inflation.

Economic Growth

Measured by GDP, the total value of all goods and services produced in a country.

Full Employment

A situation in which all available labor resources are being used in the most efficient way possible, typically measured by the unemployment rate.

Price Stability

A situation in which prices in an economy do not change much over time.