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For more information, please see full course syllabus of AP Macroeconomics
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Lecture Comments (1)

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Post by Haidar Waled on September 28, 2015

I am lost with this book question..can you kindly help me?

Suppose nominal GDP is $566 billion in 1992, $600 billion in 1993, and $642 billion in 1994. If 1992 is the base year, the price index is 105 in 1993, and real growth is 3 percent, what is the price index in 1994?


  • Inflation means that the purchasing power of money decreases, meaning that the amount of money that you have today has less real value than it did in previous times
  • Inflation arbitrarily redistributes wealth from savers to borrowers
  • Senior citizens relying on fixed income and savers tend to lose with inflation
  • Borrowers can benefit from inflation as the real amount of money paid back is worth less than when money was originally borrowed
  • The wage-price spiral explains inflation from a supply and demand perspective whereas a monetarist view of inflation argues that the quantity of money in the economy is the primary culprit that causes inflation
  • The CPI, PPI and GDP Deflator are common measures of inflation


Lecture Slides are screen-captured images of important points in the lecture. Students can download and print out these lecture slide images to do practice problems as well as take notes while watching the lecture.

  • Intro 0:00
  • Lesson Overview 0:09
  • What is Inflation? 1:11
    • Purchasing Power of Your Money Decreases
    • All Prices Increase
    • Fed Chairman Paul Volcke's Top Priority
    • Target Federal Funds Rate
    • What's Wrong with Inflation
  • Costs of Inflation 3:48
    • Shoe-Leather Costs
    • Menu Costs
    • Unit-of-Account Costs
  • Crucifying Mankind on a Cross of Gold 6:32
  • Winners and Losers from Inflation 8:16
    • Nominal Interest Rate
    • Real Interest Rate
  • Real Interest Rate Examples 11:26
  • Wage-Price Spiral 14:29
    • Combination of 'Cost-Push' and 'Demand-Pull' Inflation
    • Demand-Pull Inflation
    • Wage-Price Spiral
    • Keynesians Tend to Favor This Model of How Inflation Works
  • Monetarist View of Inflation 17:04
    • Issue of Money Supply
    • Quantity Theory of Money
    • Austrian View
    • Paul Krugman's View
  • Measurement and Calculation of Inflation 19:37
    • Aggregate Price Level
    • Market Basket
    • Price Index
  • Consumer Price Index and PPI 21:51
    • Consumer Price Index
    • Producer Price Index
  • GDP Deflator 24:35
    • GDP Deflator Equation
    • Shows How Much the Aggregate Price Level Has Increased
    • Not Based on a Fixed Basket of Good's and Services
    • Default Basket
  • Price Index Problems 25:54