Inflation basics
An increase in the general level of prices.
What is inflation?
The abbreviation used for the Consumer Price Index.
What is CPI?
A money value measured in current prices without adjusting for inflation.
What is a nominal value?
Inflation caused by an increase in aggregate demand.
What is demand-pull inflation?
The equation showing the relationship between money supply, velocity, the price level and real output.
What is MV=PQ?
A decrease in the general level of prices.
What is deflation?
The organisation responsible for calculating New Zealand’s CPI.
What is Stats NZ?
A money value that has been adjusted to account for inflation.
What is a real value?
Inflation caused by an increase in firms’ production costs.
What is cost-push inflation?
The letter representing the rate at which money changes hands.
What is V?
Prices continue to rise, but at a slower rate than before.
What is disinflation?
The selected group of everyday goods and services whose prices are tracked by the CPI.
What is the basket of goods and services?
The nominal interest rate minus the inflation rate.
What is the real interest rate?
The movement of the aggregate demand curve when consumption, investment, government spending or net exports increase.
What is a shift of the AD curve to the right?
The two variables assumed to remain constant under the crude Quantity Theory of Money.
What are velocity and real output?
The amount of goods and services that can be bought with a particular amount of money.
What is purchasing power?
The reason housing has a greater effect on CPI than education.
What is housing having a larger CPI weighting because households spend more on it?
The approximate real wage increase when nominal wages rise by 5% and inflation is 3%.
What is 2%?
The movement of the aggregate supply curve when the cost of production increases across many firms.
What is a shift of the AS curve to the left?
The change in the price level when money supply rises by 20% while velocity and real output remain constant.
What is a 20% increase?
An extremely rapid and uncontrolled increase in the general price level.
What is hyperinflation?
The inflation rate when CPI increases from 120 to 126.
What is 5%?
The change in a worker’s purchasing power when their nominal wage rises by 4.3% while inflation is 7.3%.
What is a 3% decrease in purchasing power?
The type of inflation caused when lower interest rates increase household consumption and business investment.
What is demand-pull inflation?
The stage of the business cycle where an increase in money supply is likely to cause a relatively large increase in the price level because there is little spare capacity.
What is a boom or peak?