Inflation

Inflation: A rise in general level of prices. The Inflation Standard: 2% - 3%

Inflation Rate: Measures percent increase. Key indicator of Economies Strength.

Deflation: Decline in general price level

Disinflation: Occurs when inflation rate declines

CPI: "Consumer Price Index" measures inflation by tracking the yearly price of consumer goods and services. Indicates changes in price levels and price of living.

Formulas:

• Finding Inflation Rate Using market base data.                                                                            Current  Year Market Basket value - Base Year Market value X 100                                                 Base Year Market value
• Finding Inflation Rate using price index                                                                                         Current year price index - Base year price index    X 100                                                           Base year price index
• Estimating Inflation Using Rule of 70. Used to calculate the number of years it would take for the price level to double at any given rate of inflation.                                      Years Needed to double inflation =                     70

                                                                     Annual inflation rate

• Determining real wages                                                                                                                        Real Wages = Nominal wages / Price level  X 100
• Finding real Interest rate                                                                                                                 Real interest rate = Nominal interest rate - Inflation Premium 
• Cost of borrowing/lending money that's adjusted for expected inflation; expressed as percentage.

Cause of inflation: 

• Demand-pull inflation- Cost by excess of demand over output that pulls prices upward.
• Cost-push inflation- Cause by a rise in per unit production rise due to increase resource cost

Effect of inflation: Hurt people with fixed income, savers, lenders/creditors. Helps borrowers and fixed contracts.

• Anticipated: People are told that they will get laid off (Get a new job or spend less money)
• Unanticipated: People told its their last day in the job.

Inflation Helps:

• Borrowers 
• Debt will be repaid with cheaper dollars than those that were loaned out 
• Fixed Contract 

Inflation Hurts:

• Fixed income 
• Social security 
• Savors 
• People that save money  
• Lenders / Creditors  
•  Not going to be repaid back