February 19, 2018
Inflation
- Definition: It is the general rise in the price level.
- Reduces the purchasing power of money
- Example: In 1972, gas cost $0.29. Today, it cost $3.
- When inflation occurs, each dollar of income will buy fewer goods than before.
- Causes of Inflation
- Government prints too much money
- Demand-pull inflation
- we have too many dollars chasing too few goods → demand pulls up prices
- Cost-push inflation: higher production cost increases prices.
- Unanticipated Inflation
- Hurt by inflation
- Lenders - loan money at fixed rates
- People on a fixed income - people that receive social security or retirement
- Savers
- Helped by inflation
- Borrowers
- People on flexible income - their money can come from various sources
- A business where the price of a product increases faster than the price of resources.
- Nominal Interest Rate: It is the unadjusted cost of borrowing money
- Real Interest Rate: It is the cost of borrowing or lending money that is adjusted for inflation.
- Formula:
Nominal interest rate - Inflation = Real interest rate
Its great how you're notes go in great detail. The highlighting definetly helped as well. the video was a great tough because it taught the lesson in a different way that i personally liked for my style of learning.
ReplyDeleteUnder unanticipated inflation, I think you should include those uncertain/ unaffected by inflation. If you don't have the notes for those, they are:
ReplyDelete1. ARM(Adjustable Rate Market)
2. Salary, Pension(Retirement), or Social Security that receives a COLA (Cost of Living Adjustment).
I like how you included examples of how purchasing power changes though.
I like how for inflation you put a video on how to find nominal and real GDP. The way your notes were organized really helps someone understand what inflation really is.
ReplyDelete