Inflation
description
Transcript of Inflation
![Page 1: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/1.jpg)
InflationStandard 5 Notes Part I
![Page 2: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/2.jpg)
Inflation
Inflation- a sustained rise in the level of prices generally or a sustained decrease in purchasing power.
![Page 3: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/3.jpg)
What causes inflation?
Demand-pull inflation- results when total demand rises faster than the production of goods and services
"more money chasing the same amount of goods.“
![Page 4: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/4.jpg)
What causes inflation? Cost-push inflation- results when
increases in the costs of production push up prices.◦ Inputs like labor, land, capital, and
management◦ Wage-price spiral- a cycle that
begins with increased wages, which lead to higher production costs, which in turn result in higher prices, which result in demands for higher wages.
![Page 5: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/5.jpg)
Cost-push Inflation
![Page 6: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/6.jpg)
What is the impact of inflation?
Decreasing Value of the Dollar- people on fixed incomes are hit hard. They do not receive wage increases. EX: People on social security
Increasing Interest Rates- borrowing money becomes more expensive. Credit card payments raise. Consumers buy less items that require borrowing like houses and cars.◦ Ex. Fred wants to buy a car valued at $10,000
Fred saved up for a plan where the interest rate is 5% ($188 a month) Inflation caused interest rates to increase to 10% (now $212 a month Over his 5 yr loan period, Fred will end up paying over $1,425 more for his loan at
the higher rate
Decreasing Real Returns on Savings- if the inflation rate is higher than your interest rate, you can lose money that you are trying to save.
![Page 7: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/7.jpg)
Inflation How is it measured?
◦ Consumer Price Index (CPI)- a measure of changes in the prices of goods and services commonly purchased by consumers.
◦ Producer Price Index (PPI)- a measure of change in wholesale prices
◦ Inflation Rate- the rate of change in prices over a set period of time.
![Page 8: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/8.jpg)
Types of InflationCreeping inflation
Galloping Inflation
Hyperinflation
Deflation
![Page 9: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/9.jpg)
Deflation
![Page 10: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/10.jpg)
![Page 11: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/11.jpg)
GDP
Standard 5
![Page 12: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/12.jpg)
Gross Domestic Product (GDP)
• Market value of all final G/S produced within a nation in a given time period
• To be included, a G/S must be final (intermediate- fabric, final- shirt) and produced within borders
![Page 13: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/13.jpg)
• Calculating GDP:Consumption (C)
+ Investment (I) + Government Spending (G) + Net Exports (Foreign trade, X)
• When GDP is growing, an economy creates more jobs and more business opportunities
• When GDP declines, jobs and more business opportunities become less plentiful
![Page 14: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/14.jpg)
![Page 15: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/15.jpg)
2 Types:• Nominal GDP- stated in the price levels for the year in which the
GDP was measured
• Real GDP- nominal GDP adjusted inflation (for changes in prices)– An estimate of the GDP if prices were to remain constant from year to
year
• If output remained the same, how would a year of falling prices affect nominal GDP? How would it affect real GDP?
• Nominal GDP would fall compared with other years. Real GDP would not change.
![Page 16: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/16.jpg)
What GDP Does Not Measure
• Nonmarket activities (i.e. home childcare or performing one’s own home repairs)
• Underground economy (i.e. illegal- drug dealing and legal- plumber who works for cash)
• Quality of Life (GDP does not show how G/S are distributed- 10%+ of Americans live in poverty)
![Page 17: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/17.jpg)
Just checking…
• If you get paid in cash to baby-sit, mow lawns, or do other chores for neighbors, are you part of the underground economy? Why or why not?
• Yes, if you are required to file taxes and do not report the income to the IRS
• No, if you do report taxable income
![Page 18: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/18.jpg)
How economic value might be assigned to homemaking activities:
• Choose a partner.• Attempt to determine a dollar value for one
adult’s full-time homemaking activities for one year.
• Take notes about the process you use to arrive at that figure.
![Page 19: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/19.jpg)
Business Cycle• A series of periods of expanding and contracting economic
activity• Four Phases:
– Expansion• A period of economic growth (an increase in a nation’s real GDP)
– Peak• The point at which GDP is highest
– Contraction• Sometimes a recession (6 months+) or depression (extended period of
high unemployment and limited business activity)– Trough
• The point at which real GDP and employment stop declining
![Page 20: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/20.jpg)
How economic growth is measured• Real GDP per capita– Real GDP/Total Population– Reflects each person’s share of real GDP– Some people will have more money, others less– Does not measure quality of life
![Page 21: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/21.jpg)
One way to understand business cycles is through demand and supply…
• Aggregate demand- the total amount of G/S that households, businesses, government and foreign purchases will buy at each and every price level
• Aggregate supply- the total amount of G/S that producers will provide at each and every price level
www. classzone.com
![Page 22: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/22.jpg)
Why do Business Cycles Occur?• Business decisions• Changes in interest rates• Consumer expectations• External issues (i.e. Hurricane Katrina)
![Page 23: Inflation](https://reader036.fdocuments.in/reader036/viewer/2022062315/56816587550346895dd83fb5/html5/thumbnails/23.jpg)
Business Cycles in U.S. History
• The Great Depression– Real GDP declined by about a third– Sales in some big businesses
declined by as much as 50 percent– 1 in 4 people were unemployed
• The New Deal– Government agencies created– Many Americans were put back to
work– Some trees in Eagle Creek Park
were planted during this time