Ch 9 notes

adjustable-rate mortgage (ARM)

A loan used to purchase a home where the interest rate varies with market interest rates.

base year

An arbitrary year defined as 100, used to compare inflation by looking at index numbers of other years.

basket of goods and services

A hypothetical group of items meant to represent a typical set of consumer purchases for calculating price level changes.

Consumer Price Index (CPI)

A measure of inflation calculated based on the price level from a fixed basket of goods and services.

core inflation index

A measure of inflation that excludes volatile items like food and energy to better reflect long-term price trends.

cost-of-living adjustments (COLAs)

Contractual provisions that wage increases will keep pace with inflation.

deflation

Negative inflation where most prices in the economy are falling.

Employment Cost Index

A measure of inflation based on wages paid in the labor market.

GDP deflator

A measure of inflation based on the prices of all components of GDP.

hyperinflation

An extreme outburst of high inflation often occurring during transitions from controlled to market-oriented economies.

index number

A unit-free number derived from price levels over years, simplifying the computation of inflation rates.

indexed

An automatically adjusted price, wage, or interest rate for inflation.

inflation

A general and ongoing rise in price levels within an economy.

International Price Index

A measure of inflation based on prices of exported or imported merchandise.

Producer Price Index (PPI)

A measure of inflation based on prices paid for inputs by producers of goods and services.

quality/new goods bias

Inflation that overstates the true cost of living by not accounting for quality improvements or new goods.

substitution bias

An inflation rate that overstates the true cost of living by not considering substitutions from goods whose prices rise.