Financial Analysis. Lesson 45. Inflation, Interest Rates, and Monetary Policy

Financial Analysis. Lesson 45. Inflation, Interest Rates, and Monetary Policy

1. Inflation measures the rate at which prices increase over time.

2. Consumer Price Index (CPI) tracks changes in the average price of goods.

3. Producer Price Index (PPI) measures price changes from the producer’s perspective.

4. Real interest rate is the nominal rate adjusted for inflation.

5. Nominal interest rate is the stated rate without adjusting for inflation.

6. Monetary policy is central bank actions to control inflation and growth.

7. Expansionary monetary policy lowers interest rates to stimulate economic activity.

8. Contractionary monetary policy raises interest rates to reduce inflation.

9. Federal Reserve is the U.S. central bank managing monetary policy.

10. Interest rate target guides central banks in setting short-term interest rates.

11. Quantitative easing (QE) increases money supply by purchasing government securities.

12. Open market operations involve buying or selling government bonds to influence rates.

13. Discount rate is the interest rate charged to commercial banks by the central bank.

14. Repo rate is the rate at which central banks lend short-term funds to banks.

15. Inflation expectations influence consumer spending and investment decisions.

16. Deflation is a general decline in prices, often signaling economic trouble.

17. Hyperinflation is an extremely high inflation rate, destabilizing the economy.

18. Phillips curve suggests an inverse relationship between inflation and unemployment.

19. Stagflation combines stagnant growth, high unemployment, and high inflation.

20. Core inflation excludes volatile items like food and energy for a stable measure.

21. Yield curve represents interest rates across different maturities of debt.

22. Inverted yield curve signals potential recession when short-term rates exceed long-term.

23. Treasury inflation-protected securities (TIPS) protect against inflation erosion.

24. Real GDP adjusts gross domestic product for inflation to reflect true growth.

25. Currency devaluation lowers currency value, making exports more competitive.

26. Cost-push inflation results from rising production costs increasing prices.

27. Demand-pull inflation is driven by high consumer demand exceeding supply.

28. Money supply is the total amount of money in circulation in an economy.

29. Velocity of money is the rate at which money circulates in the economy.

30. Inflation targeting is a monetary policy goal to keep inflation within a set range.

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Technical Examples:

1. Quantitative easing (QE) boosts economic activity by expanding the money supply.

2. Yield curve helps predict economic conditions based on interest rate trends.

3. Core inflation provides a stable view of inflation by excluding volatile items.