Measurement Of Changes In The Price Level:
Economics notes
Measurement Of Changes In The Price Level:
➡️ Inflation: Inflation is an economic phenomenon that occurs when the prices of goods and services rise over time. This is usually caused by an increase in the money supply, which leads to an increase in demand for goods and services.
➡️ Deflation: Deflation is the opposite of inflation, and occurs when the prices of goods and services fall over time. This is usually caused by a decrease in the money supply, which leads to a decrease in demand for goods and services.
➡️ Disinflation: Disinflation is a slower rate of inflation, and occurs when the rate of inflation decreases over time. This is usually caused by a decrease in the money supply, which leads to a decrease in demand for goods and services.
What is inflation and how is it measured?
Inflation is the rate at which the general level of prices for goods and services is rising, resulting in a decrease in the purchasing power of currency. It is measured by calculating the percentage change in the Consumer Price Index (CPI) over a period of time, typically a year.
What is the difference between nominal and real GDP?
Nominal GDP is the total value of goods and services produced in an economy, measured in current prices. Real GDP, on the other hand, is adjusted for inflation and reflects the actual purchasing power of the economy. Real GDP is calculated by dividing nominal GDP by the GDP deflator, which is a measure of the price level.
How does the Producer Price Index (PPI) differ from the Consumer Price Index (CPI)?
The PPI measures the average change in prices received by domestic producers for their goods and services, while the CPI measures the average change in prices paid by urban consumers for a basket of goods and services. The PPI is often seen as a leading indicator of inflation, as changes in producer prices can eventually be passed on to consumers in the form of higher prices.