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17 Terms
1
adjustable-rate mortgage (ARM)
A loan a borrower uses to purchase a home in which the interest rate varies with market interest rates.
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2
base year
An arbitrary year whose value as an index number economists define as 100, allowing for easy comparison of inflation over time.
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3
basket of goods and services
A hypothetical group of different items, with specified quantities, meant to represent a typical set of consumer purchases.
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4
Consumer Price Index (CPI)
A measure of inflation calculated based on the price level from a fixed basket of goods and services that represents the average consumer's purchases.
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5
core inflation index
A measure of inflation that excludes volatile economic variables such as food and energy prices.
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6
cost-of-living adjustments (COLAs)
A contractual provision that wage increases will keep up with inflation.
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7
deflation
Negative inflation; most prices in the economy are falling.
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8
Employment Cost Index
A measure of inflation based on wages paid in the labor market.
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9
GDP deflator
A measure of inflation based on the prices of all components of GDP.
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10
hyperinflation
An outburst of high inflation that often occurs when economies shift from a controlled economy to a market-oriented economy.
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11
index number
A unit-free number derived from the price level over several years, making it easier to compute inflation rates.
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12
indexed
Refers to a price, wage, or interest rate that is automatically adjusted for inflation.
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13
inflation
A general and ongoing rise in price levels in an economy.
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14
International Price Index
A measure of inflation based on the prices of merchandise that is exported or imported.
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15
Producer Price Index (PPI)
A measure of inflation based on prices paid for supplies and inputs by producers of goods and services.
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16
quality/new goods bias
Inflation calculated using a fixed basket of goods tends to overstate the true rise in cost of living, not accounting for quality improvements or new goods.
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17
substitution bias
Inflation rates calculated with a fixed basket of goods tend to overstate the true rise in cost of living due to substitution of goods.
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