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The THREE ISSUES of Macroeconomics
are: UE, IN, and EG. In chapter 12 we learned a tool (the
AS/AD model) that helped us understand what causes UE, IN,
and EG. Chapter 9 discusses the issues of UE and IN in
greater detail. And in chapters 7, 8 and 22W we study
EG.
We have already learned two causes of
inflation (lesson 12b), demand-pull and cost-push inflation,
but we really did not define inflation. Inflation (IN) is
the rate of increase in the price level, i.e. how fast it is
increasing. Here we will learn how the price level is
measured by using a price index, how inflation is
calculated, and the economic effects of
inflation.
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