Inflation Notebook.notebook December 20, 2015 Inflation is - - PDF document

Inflation Notebook.notebook 1 December 20, 2015

Definition of inflation

Inflation is

• a general increase in prices

Which goal do we achieve?

$20,000 in 1970 $150,000 in 2012

Which of our economic goals is studying this concept going to help us achieve?

Purchasing Power

Inflation results in:

• declining value of

dollar exhibited by decreased purchasing power

the ability to purchase goods and services

Purchasing Power

Jan 17­8:10 AM Jan 17­4:10 PM

Checkpoint: What is inflation?

Feb 2­2:55 PM

Deflation - Condition where prices are falling in general

Inflation Notebook.notebook 2 December 20, 2015

Feb 2­2:56 PM

Country and Time­ Zimbabwe, 2008 Annual Inflation Rate­ 79,600,000,000% Time for Prices to Double­ 24.7 hours

Hyperinflation - when inflation is above 10% annually

Jan 17­8:05 AM

What causes inflation?

PL Real GDP AS AD

Examine the AS/AD model: What can cause inflation?

Jan 17­8:06 AM Demand-Pull Inflation - occurs when demand for goods exceeds existing supplies

PL Real GDP AS AD

Jan 28­8:35 AM

Cost-Push Inflation - occurs when producers raise prices in order to meet increased costs

PL Real GDP AS AD

Feb 2­2:57 PM

Stagflation - a situation with rising prices and falling real GDP

Jan 17­8:17 AM

• 1. Workers at Am-Grow Fertilizer win a wage increase.
• 2. Wage increases

lead to higher prices for fertilizer.

• 3. Rising costs of fertilizer leads to

rising costs for farmers.

• 4. Food prices increase due

to rising farm costs.

• 5. Rising food

prices lead employees to demand higher wages.

Wage-Price Spiral

Inflation Notebook.notebook 3 December 20, 2015

Jan 17­8:26 AM

Final Cause of Inflation Quantity Theory of Money

too much money in the economy causes inflation - MUST monitor money supply to keep it in line with a nation's productivity as measured by Real GDP

Jan 17­4:10 PM

Checkpoint: What causes inflation?

Jan 17­9:32 AM

US Inflation Rate

Jan 17­9:32 AM

Inflation Day 2: Calculating Inflation Rate

Jan 17­8:32 AM

How do we measure inflation?

Jan 17­8:35 AM

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. For General Economy

Inflation Notebook.notebook 4 December 20, 2015

Jan 19­4:00 PM

What types of things would be in the basket?

Jan 19­4:03 PM Jan 17­8:46 AM Jan 17­8:44 AM

How they do it:

• 1. Fix the basket.
• 2. Find the prices.
• 3. Compute the basket's cost.
• 4. Compare the cost of the

basket from one year (or month) to the next.

Attachments Figuring CPI.docx Historical Inflation Rates Table.docx CPI and Inflation.docx