Inflation: An increase in the general level of prices for goods and services.
Disinflation: Occurs when prices are rising, but at a slow rate.
Reflation: Occurs when prices are high but then drop due to lower demand.
Hyperinflation: When prices are rising so rapidly they are out of control.
Deflation: The lowering of overall price levels.
Demand-pull inflation: Occurs when consumers want to buy more goods and services than producers supply.
Cost-push inflation: Occurs when producers raise prices because their costs to create products are rising.
Productivity: A measure of the efficiency with which goods and services are made.
Real-Cost Inflation: As resources diminish or become harder to get, prices rise.
Time Value of Money: A concept that says a dollar you will receive in the future is worth less than a dollar you receive today.
Chapter 3-2 Vocab
Cost-push pricing: Computes the total cost of making and delivering a product.
Value-based Pricing: The seller tried to determine how much consumers will be willing to pay for the product.
Market-based Pricing: The price set to be competitive with prices of similar products currently being sold.
Economizing: Saving as much as possible and spending money only when necessary.
Optimizing: Getting the highest value for the money spent.
Chapter 3-3 Vocab
Advertising: A method of informing consumers and promoting and selling products.
Target Audience: A specific group of people who are likely to be watching and are likely to buy the product.
Is an increase in the general level of prices for goods and services.
Is measure by the U.S. government using the Consumer Price Index (CPI)
Has several variations Disinflation: Reflation: Hyperinflation:
Is a lowering of overall prices for goods and services
Is the opposite of inflation
Happens when: Events cause consumers to buy less Producers are able and willing to provide goods at lower prices Technology-based products
Causes of Inflation
Demand-pull inflation- Consumers want to buy more good and services than producers supply.
Cost-push inflation- Computes the total cost of making and delivering a product.
Real-cost inflation- As resources diminish or become harder to get, prices rise.
Productivity- A measure of the efficiency with which goods and services are made.
Inflation and Employment
High inflation often means high employment rates
Low inflation often means low employment rates
Mild inflation of 2 or 3 percent can be good for the economy
In time of Inflation
Workers with fixed pay rates may be able to buy less
Consumers must spend more to meet needs and may be able to save or invest less
Time value of Money:
A Full Day’s Work for a Full Day’s Pay
Ethical behavior requires workers to provide a full day’s work for a full day’s pay
This behavior can lead to positive job ratings or promotions
Poor work habits can lead to poor job ratings or dismissal
3-1 FED Terms
Monetary policy- Actions by the Federal Reserve System (The Fed)
Fiscal policy- Actions taken by the federal government to manage the economy
Discount rate- rate that banks have to pay to borrow money from the Fed.
Reserves- Cash the bank must keep on hand
Federal funds rate- rate at which banks can borrow from the excess reserves of other banks
Prime rate- rate that banks can charge to their most creditworthy business customers