Macroeconomics Inflation Overview

An increase in the average level of prices, measured by changes in a price index.

An index that measures the average price of a large and representative basket of goods and services.

The percentage change in the average level of prices over a period of time.

A theory suggesting that the amount of money in circulation affects prices and inflation.

Increasing interest rates to control inflation by making borrowing more expensive.

Determining the rate of change in the average price level using a relevant price index over a specific timeframe.

Calculations to account for inflation's impact on purchasing power over time.

Categorizing inflation based on data and trends, such as identifying its potential causes.

The negative effects stemming from price increases on economic activity and individuals' well-being.

The process where financial institutions connect lenders and borrowers in markets.

A measure of the average change over time in the prices paid by urban and rural consumers for a basket of consumer goods and services.

The rate at which people expect prices to rise in the future.

A method used to gather data on consumers' expectations of inflation rates, carried out by organizations like the RBI (Reserve Bank of India) in India.

The goods and services that consumers regularly buy.

Different consumers may have different sets of goods and services which make up their personal CPI, and their expectations may differ due to these individual baskets from the overall CPI.

Actions taken by a central bank to manage the money supply and interest rates to influence the economy's inflation and output.

A desired level of inflation set by a central bank.

A state of economic balance and predictability where prices and employment rates are relatively stable.

Increase in the value of goods and services produced by an economy over time.

Individual spending habits vary based on factors like income, family, location, gender, and preferences, differing from average consumer patterns.

The Consumer Price Index (CPI) is calculated based on the average consumer's weights assigned to goods and services.

Consumers tend to overestimate inflation for frequently bought goods because they are more noticeable.

Consumers may form quick judgements about inflation based on recent price changes, overlooking long-term trends.

Calculating the real price of something by adjusting for inflation over time.

Different categories for inflation (e.g., running, galloping).

A theory linking the amount of money in an economy to the price level of goods and services.

MV = PY (Money Supply * Velocity = Price Level * Output).

Total money available in an economy at a specific time, including cash and deposits.

Rate at which money circulates in an economy.

Average prices of all goods and services in an economy.

Total quantity of goods and services produced in an economy, measured by real GDP.

MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output.

Velocity of money does not change significantly in the short term when applying the quantity theory of money.

Real GDP ( output ) is stable in the short run, largely determined by factors like resources and technology.

The value of all finished goods and services produced in an economy during a month or year, calculated based on current prices.

Peru experienced a 6000% annual inflation rate in 1990.

A 1% increase in money supply growth rate leads to a 1% increase in inflation rate (as evidenced in 110 countries).

In the long run, changes in money supply primarily affect prices, not real variables (output, employment etc).

Inflation is always linked to changes in the money supply.

Central banks, by controlling money supply, significantly influence inflation.

Inflation makes long-term contracts riskier due to uncertain future price levels.

The real return on an investment, adjusted for inflation.

Inflation transfers wealth from lenders to borrowers.

The relationship between nominal interest rates, inflation rates, and real interest rates.

Overall price level in an economy, measured by the Consumer Price Index (CPI).

Inflation excluding volatile items (like food and fuel), showing underlying trends.

Change in food prices, impacting household budgets and standards of living.

Fluctuations in fuel prices, a critical component of inflation.

Excessive demand leading to economic overheating.

Slow, steady price increases (1-4%).

Moderate price increases (2-10%).

Inflation increases (10-20%).

Rapid price increases (20-1000%).

Out of control inflation (50%+ price increases each period).