What are ‘bubbles’?
Surges in asset prices to level significantly above the fundamental value of that asset.
What are NINJA LOANS?
NINJA stands for no interest, no job, no assets == sub-prime mortgages.
What does CPI stand for and what is it?
Consumer price index shows how the prices have changed between different years. CPI is the most commonly used measure of inflation.
What do economists mean when they say ‘nominal’?
That the price from the past has not been adjusted for inflation.
What is ‘speculation’?
Trading financial instrument involving high risk, in expectation of significant returns. Like the 2008 financial crisis in the US.
What is the problem with a bubble?
It depends on an ever increasing supply of buyers, betting they’ll be able to sell for a higher price. Eventually, you run out of buyers and the bubble bursts.
What negatively influenced the export of oil from Venezuela?
Economic mis-management and political instability
Try to identify inflation.
Inflation is an increase in a currency supply relative to the number of people who are using it, resulting in rising prices of goods and services over time.
What do economists mean when they say ‘real’?
That the price from the past has been adjusted for inflation.
Who is the sugar granddaddy of all bubbles?
The Dutch tulip mania in the 1600s. Tulip gardens became a social fad among the wealthy, driving up their price. More people made money with the tulip action.
What is the inflation caused by people called? How would you define it?
Demand pull inflation - too much money chasing too few goods.
What is the inflation cause by the decrease of availability of an important productive resource called?
Cost push inflation.
Why is the CPI not perfect?
Because the market basket has to be constant and a traditional CPI won’t adjust for new products or increase in quality. Example, black&white vs 40-inch flat TV
Which country out of these four has the highest rate of inflation and what was the exact rate at the end of 2014? A USA; B Canada; C Venezuela; D Japan
C Venezuela; 70%
If you have 10 million dollars, are you rich?
Well, if you are on a desert island, you are not. Being rich is determined by how much purchasing power you have, not the amount of money on your bank account.
What are 2 causes for inflation?
1 If people have more money, they are going to bid up the prices for things, causing inflation. 2 The decrease of availability of a productive resource, as oil.
On which condition do the prices rise?
Higher demand and lower supply.
What is ‘purchasing power’?
The amount of physical goods that can be bought by a given amount of money.