Low Inflation - Learning Objectives

After studying the portion of this blog devoted to the macroeconomic policy goal of low inflation, you should be able to:

· define inflation and the inflation rate.
· define and explain the difference between deflation and disinflation.
· define hyperinflation and provide examples of its occurrence in the 20th century.
· explain the relationship between nominal variables, real variables, and the inflation rate.
· use nominal and real interest rate data to calculate inflation rates.
· use inflation and nominal interest rate data to calculate real interest rates.
· use inflation and real interest rate data to calculate nominal interest rates.
· explain why low inflation is an important macroeconomic goal.
· explain the effects of expected, predictable, uniform price changes.
· define and explain the significance of the shoe leather and menu costs of inflation.
· explain the effects of expected and predictable price changes that are not uniform.
· explain the effects of price changes that are unexpected and unpredictable.
· define purchasing power and indexation, and explain their relationships to inflation.
· define and explain the causes of cost-push and demand-pull inflation.
· list and explain the strategies for controlling inflation.
· explain why the goal is low inflation instead of no inflation.
· explain why the consumer price index (CPI) overestimates actual inflation.
· explain the effect of inflation on borrowers and lenders.
· explain the effect of inflation on people with indexed and non-indexed incomes.
· explain the effect of inflation on investment decisions by businesses.
· explain why inflation leads consumers to make inefficient decisions