Outcome:- SWBAT • Explain the purchasing power

of money• Identify and explain the

different measures of inflation

KECSS MS. MURRENECONOMICS 1/4/12

Initial Activity

Mini Lesson•What is inflation- A prolonged rise in the general price level of final goods and services. When this situation occurs, the purchasing power of the ‘dollar’ goes down.

•What is the purchasing power of money? The real goods and services that money can buy. It determines the value of money.

•What is deflation? The prolonged decline in the general price level of goods and services. This situation rarely happens in modern times.

Mini Lesson•What is the Consumer price index (CPI)? A statistical measure of the average of prices of specified set of goods and services purchased by typical consumers in city areas.• The group of items that are priced are called a market basket. It includes about 80,000 goods and services under general categories like food, housing, transportation , clothing, education, medical care, etc• About every ten years the basket is updated to include new

items and to reflect more current spending patterns.• Employees at the federal Bureau of Labor Statistics (BLS)

compile the CPI monthly. They start with prices from a base year. So that they have a point of comparison. Ex. If you paid $2.00 for an ice cream cone in 2006 and the price of the cone increased to $2.50 in 2007 then the cost of an ice cream cone has risen .50 cents since the base year. The base year is given a value of 100.

Mini Lesson• What is the producer price index (PPI)? A measure of

the change in price over time that US producers charge for their goods and services. Most of the producer prices that are included are in mining, manufacturing and agriculture.

• The PPI’s usually increase before the CPI’s. Why?

• What is the GDP Price Deflator? The price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to the overall economy in another year. When the price deflator is applied the new value is the real GDP