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

Inflation Notebook.notebook December 20, 2015 Inflation is $150,000 in 2012 - a general increase in prices $20,000 in 1970 Which of our economic goals is studying this concept going to help us achieve? Definition of inflation Which goal do we achieve? Inflation results in: - declining value of dollar exhibited by decreased purchasing power Purchasing Power the ability to purchase goods and services Purchasing Power Jan 17­8:10 AM Checkpoint: What is inflation? Deflation - Condition where prices are falling in general Jan 17­4:10 PM Feb 2­2:55 PM 1

Inflation Notebook.notebook December 20, 2015 What causes inflation? Country and Time­ Zimbabwe, 2008 Annual Inflation Rate­ 79,600,000,000% Time for Prices to Double­ 24.7 hours Examine the AS/AD PL AS model: What can Hyperinflation - when cause inflation? inflation is above 10% annually AD Real GDP Feb 2­2:56 PM Jan 17­8:05 AM Demand-Pull Inflation - occurs when Cost-Push Inflation - occurs when producers demand for goods exceeds existing raise prices in order to meet supplies PL increased costs PL AS AS AD AD Real Real GDP GDP Jan 17­8:06 AM Jan 28­8:35 AM Wage-Price Spiral 4. Food prices increase due Stagflation - a situation with to rising farm costs. 5. Rising food prices lead rising prices and falling real 2. Wage increases employees to GDP lead to higher demand higher prices for wages. fertilizer. 3. Rising costs of fertilizer leads to rising costs for farmers. 1. Workers at Am-Grow Fertilizer win a wage increase. Feb 2­2:57 PM Jan 17­8:17 AM 2

Inflation Notebook.notebook December 20, 2015 Final Cause of Inflation Quantity Theory of Checkpoint: What causes inflation? 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 17­8:26 AM Jan 17­4:10 PM US Inflation Rate Inflation Day 2: Calculating Inflation Rate Jan 17­9:32 AM Jan 17­9:32 AM For General Economy CONSUMER PRICE INDEX - a price index determined by measuring the price of a standard How do we measure inflation? group of goods meant to represent the "market basket" of a typical urban consumer. Jan 17­8:32 AM Jan 17­8:35 AM 3

Inflation Notebook.notebook December 20, 2015 What types of things would be in the basket? Jan 19­4:00 PM Jan 19­4:03 PM 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. Jan 17­8:46 AM Jan 17­8:44 AM 4

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