๐ Topic Summary
Inflation is the rate at which the general level of prices for goods and services is rising, and consequently, the purchasing power of currency is falling. The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
๐๏ธ Part A: Vocabulary
Match the terms with their correct definitions:
- Term: Inflation
- Term: Deflation
- Term: CPI (Consumer Price Index)
- Term: Purchasing Power
- Term: Market Basket
- Definition: A representative set of goods and services used to track inflation.
- Definition: A decrease in the general price level of goods and services.
- Definition: The statistical measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
- Definition: The ability to buy goods and services.
- Definition: A general increase in prices and fall in the purchasing value of money.
โ๏ธ Part B: Fill in the Blanks
Complete the following paragraph with the correct terms:
The _______ is used to measure _______. It tracks the average change in prices of a _______ of goods and services. When the CPI rises significantly, it indicates that _______ is decreasing.
๐ค Part C: Critical Thinking
Explain how unexpected inflation can impact both borrowers and lenders. Who benefits and who is negatively affected?