Inflation and Deflation
Chapters in this video
- 0:00 The inflation monster and Fed policy
- 1:19 Inflation defined: sustained increase in general price level
- 2:43 Disinflation vs. deflation: the massive exam trap
- 3:37 Stagflation: inflation plus stagnation
- 5:04 Real return formula and nominal return math
- 6:25 Consumer Price Index (CPI): the primary inflation gauge
- 7:17 Rapid-fire exam recap
What this video covers
- The precise distinction between disinflation (prices still rising, but more slowly) and deflation (prices actually falling), and why confusing the two costs points
- Why stagflation is the worst of both worlds: stagnant economic growth, high unemployment, and high inflation combined
- How inflation erodes the purchasing power of fixed-income investments (bonds, fixed annuities) and why fixed-income investors are losers
- Why borrowers benefit during inflationary periods: repaying debt with less valuable dollars
- The real return formula: real return equals nominal return minus the inflation rate, and why the exam tests this calculation
- The Consumer Price Index (CPI) as the primary inflation gauge, what it measures, and which entity publishes it
- The monthly publication schedule of the CPI by the U.S. Bureau of Labor Statistics (BLS), not the Federal Reserve or Treasury
Read the full lesson, free
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