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What is inflation?
A sustained rise in the average price level.
What term describes extremely high, runaway inflation?
Hyperinflation.
Who is hurt most by inflation among people with fixed incomes?
Persons living on fixed incomes.
What adjustment ties wages to inflation to protect purchasing power?
Cost of living adjustment (COLA).
Why do creditors lose during inflation?
Repayments are worth less in terms of purchasing power.
How can savers be harmed by inflation?
Prices can increase faster than interest earned, causing lost savings.
How does inflation affect consumers overall?
Over time, inflation robs consumers of purchasing power.
Name one group that can win from inflation.
Borrowers.
Which national measure tracks price changes for all goods in the economy?
The GDP deflator.
What index measures price changes for about 400 goods and services?
The Consumer Price Index (CPI).
What is the CPI’s base concept used for comparisons?
A base period.
How is the rate of inflation calculated?
((Recent CPI – Earlier CPI) / Earlier CPI) × 100.
What economic concept ties present wages/prices to an adjustment figure?
Indexing.
Name one limitation of the CPI.
It assumes all urban households buy the same basket of goods.
Give another limitation of the CPI.
It does not adjust fully for quality changes.
What is cost-push inflation?
Inflation caused by a decrease in supply or rising production costs.
