Inflation
Unit 2: Inflation
Inflation
- a general rise in the price level
- reduces the purchasing power of money
- each dollar of income will buy fewer goods than before
- inflation rate: (new price index - old price index) / (old price index) x 100
- causes of inflation:
- govt prints too much money
- govts that keep printing money to pay debt end up with a condition called hyper-inflation
- demand-pull inflation: too many dollars chasing too few goods
- demand pulls up prices
- cost-push inflation: higher production cost increases prices
Hurt by Inflation
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Helped by Inflation
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1. Lenders / creditors (fixed rate)
2. Fixed income
3. Savers
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1. Debtors / borrowers
2. Flexible income
3. A business where the price of the product
increases faster than the price of resources
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Nominal Interest Rate
- the unadjusted cost of borrowing or lending money
Real Interest Rate
- the cost of borrowing or lending money that is adjusted for inflation
- (nominal interest rate) - (inflation)
The notes are extremely organized and displayed in a format that is easy to comprehend. Would have liked to see examples on finding the inflation rate, though it is simple math visualizing the problem and seeing it worked out in full will allow me to better grasp the concept of inflation.
ReplyDeleteI like the charts! i just wanted to add that we also discussed people who wouldn't be affected by inflation, which are those with adjustable rate mortgages or that that receive Colas, which ares cost of living adjustments.
ReplyDeleteI really love how organized your blog is and everything is easy to follow! I would suggest that you add something like an example problem so anyone can follow and see how to calculate the inflation rate in a scenario.
ReplyDelete