Economics 102: Inflation, Price Levels, and Business Cycles

Vocabulary flashcards covering key concepts from Economics 102 Practice Questions #2, including inflation types, CPI, GDP deflator, and the business cycle.

Rate of Inflation in 2004

The percentage increase in the price level for 2004 based on the CPI table, calculated as $3.88\%$.

Rate of Inflation in 2005

The percentage increase in the price level for 2005 based on the CPI table, calculated as $1.62\%$.

Disinflation

A condition in which the rate of inflation slows down compared to the prior period, as observed in 2005 when inflation slowed from $3.88\%$ to $1.62\%$.

Deflation

A situation where the rate of inflation is negative and the Consumer Price Index (CPI) decreases; it is rare in the U.S. and did not occur between 2001 and 2005.

Inflation-Adjusted Wage (2002 to 2005)

The wage required in 2005 to match the purchasing power of $\$10$ per hour in 2002, which equals $\$10.80/\text{hour}$.

Nominal GDP

An economic output measure that cannot be determined solely from changes in the price level (CPI) without additional data.

Stagflation

A price condition that only occurs during a recession; although somewhat rare, it is considered normal in the U.S.

Hyperinflation

An excessively high rate of inflation that differs from inflation only by degree, has no universally agreed-upon numerical cutoff, and has never occurred in the U.S.

Trough

The lowest point in a business cycle, which is followed directly by economic growth, expansion, or recovery.

Economic Growth / Expansion / Recovery

Interchangeable terms identifying the phase in a business cycle that comes immediately after a trough.

GDP Deflator

A measure of the price level based on the prices of everything produced in an economy, making it more inclusive than the Consumer Price Index (CPI).

Consumer Price Index (CPI)

The most commonly used measure of the price level, based specifically on the purchases of the typical consumer.