ECON 2105 Lecture Notes - Lecture 14: Money Supply, Money Illusion, Real Change
Document Summary
Inflation is the rise/growth in general price level. Deflation is the fall in general price level. A reduction in the rate of inflation is called disinflation. Bureau of labor statistics, a government agency is responsible for reporting inflation data. Inflation is a major problem because: it creates uncertainty, makes long term agreement difficult, due to uncertainty consumers may change their buying patterns. The historical average inflation is about 4%. Inflation was highest in and around the decade of the 1970s. Inflation was over 14. 5% in the year between april 1979 and march 1980. Since 1983, inflation has averaged less than 3% The only time that u. s. inflation rates were negative was during the recession of 2008-09. Consequences of inflation: future price level uncertainty. Firms often make long-term agreements that involve paying salaries to workers and paying loans on capital goods. Workers: fear of getting underpaid next year.
