Understanding Inflation: CPI, Inflation Rate, PPI, Interest Rates, and Indexation, Quizzes of Introduction to Macroeconomics

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TERM 1

Consumer Price Index (CPI)

DEFINITION 1 --a measure of the overall cost of goods and services bought by a typical consumer.--Calculated as follows:Consumer price index =(Price of basket of goods and services in current year) x 100 /(Price of basket in base year) TERM 2

Inflation Rate

DEFINITION 2 --the percentage change in the price index from the preceding period--Calculated as follows:Inflation rate in year 2 =(CPI in year 2 - CPI in year 1) x 100 /(CPI in year 1) TERM 3

Producer Price Index (PPI)

DEFINITION 3 --measures the cost of a basket of goods and services bought by firms rather than consumers. TERM 4

Nominal Interest Rate

DEFINITION 4 --the interest rate as usually reported without a correction for the effects of inflation. TERM 5

Real Interest Rate

DEFINITION 5 --The interest rate corrected for the effects of inflation

TERM 6

Indexation

DEFINITION 6 --The automatic correction by law or contract of a dollar amount for the effects of inflation