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Week 2: Measuring prices (Inflation (The true costs of high inflation…
Week 2: Measuring prices
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Inflation
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rate of change of average price level (it does not mean that when inflation occurs, every prices increase), relative price is the price of one good relative to other goods
adjusting for inflation
Deflating: CPI is used to convert quantities measured at current values into real terms . Real family income = Nominal family income/ CPI
Indexing: CPI is used to convert real quantities into current- dollar terms. Example: $ + (percentage increase in CPI x $)
The costs of inflation
government policy
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to deal with change in relative prices: policies that effect the supply and demand of specific goods (micro)
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Deflation: now, creditors who gain at debtor's expense
Wage, employment and labor market
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Types of unemployment
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Structural unemployment: when the skills and aspirations of workers are not matched to the jobs available in the economy
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Cost of unemployment
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Increase in crime, domestic violence (social cost)
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