Unit 7: Inflation

Introduction

What’s in This Chapter? Inflation is an important factor influencing a nation’s economic health. Low inflation means more price stability and more certainty for households that their savings and investments retain...

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Section 1: Inflation Rates Measures

Ways to Measure Inflation Common indices to measure inflation include the Consumer Price Index (CPI), the Producer Price Index (PPI), and the GDP Price Deflator. The Consumer Price Index (CPI) The most common measure of...

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Section 2: The Cause of Inflation

Money Demand and Supply In the long run, the value of money, like the price of any good, is determined by the demand and supply of money in circulation. The following example illustrates this concept. Problem: Let’s say...

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Section 3: Harmful Effects of Inflation

Long Run Consequences of Inflation The following are harmful consequences of inflation. Inflation causes: 1. Higher interest rates. Inflation leads to higher interest rates in the long run. Initially when the government...

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Section 4: Are Falling Prices Harmful?

Effects of a Constant Money Supply  If no additional money is printed, the nominal value of spending in our economy remains constant. The only long-run variable that then affects the price level is the total (aggregate) real...

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Section 5: The Gold Standard

Characteristics of a Gold Standard System A gold standard is a system in which a certain fixed amount of a country’s currency is legally exchangeable for gold. Because the ratio of gold to the money supply is fixed, the...

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Test Your Knowledge!

  Time limit: 0 Quiz-summary 0 of 10 questions completed Questions: 1 2 3 4 5 6 7 8 9 10 Information This is a ten question multiple-choice quiz covering the material in this Unit. I hope you do well! You have already...

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