Practice Study Guidec – Inflation, CPI, and Real vs. Nominal Values

Vocabulary flashcards covering key concepts from lecture notes on Inflation, CPI, and Real vs. Nominal Values.

Inflation Rate Formula (from CPI)

Calculated as ((CPInew - CPIold) / CPI_old) × 100, used to track inflation changes over time.

CPI (Consumer Price Index)

A measure used to track inflation changes over time.

Real Wage

The wage adjusted for inflation, calculated by (Nominal Wage / CPI) × 100.

Nominal Wage

The wage measured in current dollars, not adjusted for inflation.

Fisher Equation

A formula (i ≈ r + π) showing the relationship between the nominal interest rate (i), the real interest rate (r), and the inflation rate (π).

Nominal Rate (Interest)

The stated interest rate before accounting for inflation.

Real Rate (Interest)

The interest rate after adjusting for inflation, reflecting the true increase in purchasing power.

Inflation

An increase in the overall price level.

Price Level Increasing

A condition indicating that inflation is occurring, meaning the average prices of goods and services are rising.

Relative Price Change

Occurs when the price of one good rises or falls in comparison to the prices of other goods.

Costs of Inflation

Negative effects such as interfering with long-term planning, reducing the purchasing power of money, and creating uncertainty for savers, lenders, and borrowers.

Hyperinflation

Extremely high inflation, typically defined as 50% or more per month.

Real Values

Economic values adjusted for inflation, reflecting purchasing power.

Nominal Values

Economic values measured in current dollars, not adjusted for inflation.