ap macro 2.4

inflation

sustained increase in the overall price level of goods, and services in an economy over time

disinflation

prices rising, but at slower rates, common in cooling economies

deflation

prices decrease, causes people to hoard money

hyperinflation

prices rise rapidly/out of control

price index

numerical values showing how prices have changed relative to a specific year

cpi

measures the cost of a fixed basket goods like food, housing, clothing, medical care. Index number, not a percentage

inflation rate

percent changes in prices from year to year

problems with cpi (substitution bias)

consumers switch to cheaper substitutes not in the basket, cpi may be higher than actual cost

new products

basket may not include new goods, misses increase in choices

product quality

ignores improvements, or declines in quality, may overstate/understate quality

base year in cpi is

100