Inflation (Lecture)

Items purchased by the average family of four in a city

Only food and beverages

Luxury goods only

Items purchased by businesses

A measure of the average change in prices paid by consumers for goods and services

A measure of the total output of a country

A measure of unemployment rates

A measure of government spending

A steep growth in CPI is accompanied by high inflation rates

The CPI remains constant during high inflation

Inflation rate is the percentage change in CPI

CPI and inflation rate are unrelated

Aggregate demand increases

Aggregate supply increases

Money supply decreases

Aggregate supply decreases

Aggregate demand increases

Aggregate supply increases

Money supply decreases

Aggregate supply decreases

2%

5%

7%

12%

It decreases

It increases

It stays the same

It becomes negative

Lenders may receive less real profit than expected.

Borrowers may pay less real interest than expected.

Unexpected inflation always benefits lenders.

Unexpected inflation can hurt banks.

Menu costs

Shoe-leather costs

Unit of account costs

Unexpected inflation

Menu costs

Shoe-leather costs

Unit of account costs

Unexpected inflation

Unemployment is also high

Unemployment is generally low

Unemployment is unaffected

Unemployment fluctuates randomly