Changes in Price Level - Macroecon Chapter 26

Increase in the general level of prices

A reduction in the rate of inflation (Ex: 2020 inflation was 8%, 2021 is 7%)

Price index used to measure the inflation rate

Collection of consumer G/S purchased by a typical urban consumer

Income earned in current dollars

Income earned after inflation has been taken into account

Occurs when an increase in demand pulls up prices

Occurs when a firms’ per unit costs of production increase, causing the supply to decrease

Decrease in the general level of prices

Extreme inflation

When more expensive goods entering the market basket cause prices to go up

Improvement in the quality of goods increasing prices

Consumers will substitute expensive goods with cheaper ones