Outline+Section+13.2

**__Key Terms__** Inflation: a general increase in prices Purchasing Power: the ability to purchase goods and services Price Index: a measurement that shows how the average price of a standard group of goods changes over time Consumer Price Index: a price index determined by measuring the price of a standard group of goods meant to represent the "market basket" of a typical urban consumer Market Basket: a representative collection of goods and services Inflation Rate: the percentage rate of change in price level over time Core Inflation Rate: the rate of inflation excluding the effects of food and energy Hyperinflation: inflation that is out of control Quantity Theory: theory that too much money is the economy causes inflation Demand-Pull Theory: theory that inflation occurs when demand for good and services exceeds existing supplies Cost-Push Theory: theory that inflation occurs when producers raise prices in order ti meet increased costs Wage-Price Spiral: the process by which rising wages cause higher prices, and higher prices cause higher wages Fixed Income: income that does not increase even when prices go up Deflation: a sustained drop in the price level
 * Chapter 13.2**

The Effects of Rising Prices - Inflations shrinks the value and power that money has

Price Indexes - Price levels are the cost of goods and services in the entire economy at a given point in time