Ch.13+notes&hw

Ch. 13.2 notes
 * Inflation is a general increase in prices.
 * Purchasing power is the ability to purchase goods and services. As price rises, the purchasing power of money declines.
 * Economists do not compare individual prices they compare price levels.
 * To calculate the price level they turn to the price index.
 * A price index is a measurement that shows how the average price of a standard grow of goods changes over time.
 * A price index produces an average that economists can compare to earlier averages to see how much prices have changed over time.
 * Consumer Price index is a price index determined by measuring the price of a standard group of goods meant to represent the market basket, of a typical urban consumer.
 * A market basket is a representative collection of goods and services.
 * inflation rate, is the percentage rate of change in price level over time.
 * Core inflation rate, is the rate of inflation excluding the effects of food and energy prices.The worst type of inflation is, hyper inflation.
 * Hyper inflation is inflation that is out of control. This may lead to an economic collapse.
 * Theories for inflation, quantity theory, demand-pull theory, and cost push theory.
 * Quantity theory, theory that too much money in the economy causes inflation.
 * Demand-pull theory, is the theory that inflation occurs when demand for goods and services exceeds existing supplies.
 * such as war time
 * Cost-push theory, is the inflation that occurs when producers raise prices in order to meet increased costs.
 * Wage price spiral, is the process by which rising wages cause higher prices, and higher prices cause higher wages.
 * Effects if inflation can be seen mainly in purchasing power, income, and interest rates.
 * Fixed income is that income does not increase even when prices go up.
 * Deflation, a sustained drop in the price level.

13.2 #1-6 1. Purchasing power is the ability to purchase goods and services, so as price rises, the purchasing power of money declines. 2. Consumer Price index is a price index determined by measuring the price of a standard group of goods meant to represent the market basket, of a typical urban consumer. 3. This process by which rising wages cause higher prices, and higher prices cause higher wages, can lead to bad effects because businesses would have to pay there employees higher and still have to pay higher prices for there own equipment, leading to disaster. 4. During the 1900's the economy was suppost to be at its high but because of lack of usage it was said to be at its low. 5. the inflation rate from 164 to 168 would be 2%. 6. Since i have never experiences inflation i would react astonished at either the decrease in my pay or increase. In this occasion an increase would make me realize that prices are sure to go up and the standard of living will also go up because of the wage increase.