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the goods a typical consumer buys
Consumer Price Index
a measure of all the costs of goods and services used by a typical consumer
formula: (CPIyear2)- (CPIyear1)/(CPIyear2)
# of percentage points annual output lost (or unemployment gained) while reducing inflation by 1% point.
people use all info they have, including info regarding govt policies, when forecasting the future
multiple goods out there, fixed basket overlooks substitution between goods.
A tv today is not that same thing as a TV 50 years ago
Introduction of new goods
New goods. Computer chips, the iPad
suppose you know the prices will increase. The general effect of anticipated inflation is that people put their money in a bank to earn interest.
- Suppose inflation comes from nowhere
- -decreases ability to purchase goods
- -harms the ability of financial firms to make loans
Cost of inflation