About This Chapter
Inflation & Adjustment in Economics - Chapter Summary
If you are looking for ways to enhance your comprehension of inflation and adjustment in economics, this chapter can help. Entertaining lessons provide an in-depth look at the gross domestic product, the multiplier effect and the consumer price index. Also, learn how to measure the cost of living, calculate real GDP and adjust wages for the inflation rate. Upon completion of this chapter, you will be able to:
- Define the consumer price index, and differentiate between the GDP deflator and consumer price index (CPI)
- Explain the reasons why some economists believe the CPI overstates inflation
- Adjust wages for inflation to compare wages between two cities
- Differentiate between nominal and real GDP, and calculate real GDP growth rates
- Describe the multiplier effect and simple spending multiplier
- Discuss cost-push inflation and how the supply side of the economy leads to inflation
- Share differences between demand-push inflation and cost-push inflation
- List the effects of inflation on suppliers and demanders, and discuss the equation of exchange and the inflation rate
Ensure your study of inflation and adjustment in economics is effective by using this chapter's resources your way. Select your first lesson to review, then navigate the right-hand sidebar to choose others in any order. Take accompanying quizzes before, during or after reviewing the lessons to assess your inflation and adjustment knowledge. Revisit any lessons you want to better understand, and be sure to take the practice exam to confirm your comprehension of this chapter.
1. Consumer Price Index: Measuring the Cost of Living and Inflation
In this lesson, you'll learn what the Consumer Price Index is and how it measures changes in the level of prices in an economy. You'll also learn about the important economic concepts of inflation and deflation. Why do prices always seem to be going up?
2. The GDP Deflator and Consumer Price Index
Have you ever wondered how inflation is measured? This lesson will compare and contrast two of the indicators used to measure inflation - the consumer price index and the GDP deflator.
3. Consumer Price Index and the Substitution Bias
In this lesson, you'll learn about the Consumer Price Index and how it is measured. You'll also learn why many economists believe that the Consumer Price Index overstates inflation.
4. Adjusting Wages for the Inflation Rate
Have you ever heard your parents complain that a dollar doesn't go as far as it used to? In this practical lesson, learn how to calculate the real wage by adjusting the nominal wage to account for changes in the price level within the economy.
5. Gross Domestic Product: Nominal vs. Real GDP
Watch this video and you'll learn the difference between nominal GDP and real GDP with the help of a memorable story about a competition between twin brothers.
6. Gross Domestic Product: How to Calculate Real GDP
Learn how to adjust economic output for inflation using real GDP. This calculation enables economists to remove the effect of rising prices and more accurately compare economic output from multiple years.
7. How to Calculate Real GDP Growth Rates
How can you tell how much the economy is really growing from year to year? In this lesson, you'll discover the formulas economists use to calculate real GDP growth rates and draw conclusions about real economic growth.
8. The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples
When money is spent in an economy, this spending results in a multiplied effect on economic output. This lesson explains the multiplier effect and the how to use the simple spending multiplier to calculate it.
9. Cost-Push Inflation: How the Supply Side of the Economy Leads to Inflation
Learn about cost-push inflation, when higher production prices lead to an increase in prices within the economy. Using real-world examples, this lesson describes what it is, what causes it and how economists illustrate it.
10. Demand-Pull Inflation vs Cost-Push Inflation
Discover two basic types of inflation, demand-pull and cost-push inflation. Learn what factors cause each type of inflation and some of the key differences between each.
11. Effects of Inflation on Suppliers and Demanders
In this lesson, you'll discover who benefits and who suffers from a sustained increase in prices within an economy. We'll cover the effects of expected and unexpected inflation on savers/creditors and borrowers/debtors.
12. Equation of Exchange & Inflation Rate
Too much of anything can be bad, and too much money in the economy is no different. In this lesson, you'll learn about the equation of exchange and how it can be used to analyze the rate of inflation and its relationship to the money supply.
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