december 20, 2015 · inflation notebook.notebook 3 december 20, 2015 jan 178:26 am final cause of...
TRANSCRIPT
-
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 Rate79,600,000,000%
Time for Prices to Double24.7 hours
Hyperinflation - when inflation is above 10%
annually
Jan 178:05 AM
Whatcauses inflation?
PL
RealGDP
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
RealGDP
AS
AD
Jan 288:35 AM
Cost-Push Inflation - occurs when producers raise prices in order to meet
increased costs PL
RealGDP
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
Step 1: Survey Consumers to Determine a Fixed Basket of Goods
Basket = 2 Hamburgers, Pound of Apples
Step 2: Find the Price of Each Good in Each Year
YearPrice of HamburgersPrice of a Pound of Apples
2008$2$1
2009$3$2
2010$4$3
Step 3: Compute the Cost of the Basket of Goods in Each Year
2008 ($2 per hamburger X 2 Hamburgers) + ($1 per pound of apples X 1 pound of apples) = $5
2009 ($__ per hamburger X 2 Hamburgers) + ($___ per pound of apples X 1 pound of apples) = $______
2010 ($__ per hamburger X 2 Hamburgers) + ($ __ per pound of apples X 1 pound of apples) = $______
Step 4: Choose a Base Year (2008) and Compute the Consumer Price Index
2008 ($5/$5) X 100 = 100 (CPI BASE YEAR)
2009 (____/$5) X 100 = ________ (CPI for 2009)
2010 (_____/$5) X 100 = ________ (CPI for 2010)
Step 5: Use the Consumer Price Index to Compute the Inflation Rate from Previous Year
Method:
2009:
2010
SMART Notebook
Table of Historical Inflation Rates by Month and Year (1914-2011)
1932
-10.1
-10.2
-10.3
-10.3
-10.5
-9.9
-9.9
-10.6
-10.7
-10.7
-10.2
-10.3
-9.9
1933
-9.8
-9.9
-10.0
-9.4
-8.0
-6.6
-3.7
-2.2
-1.5
-0.8
0.0
0.8
-5.1
1934
2.3
4.7
5.6
5.6
5.6
5.5
2.3
1.5
3.0
2.3
2.3
1.5
3.1
1935
3.0
3.0
3.0
3.8
3.8
2.2
2.2
2.2
0.7
1.5
2.2
3.0
2.2
1936
1.5
0.7
0.0
-0.7
-0.7
0.7
1.5
2.2
2.2
2.2
1.4
1.4
1.5
1937
2.2
2.2
3.6
4.4
5.1
4.3
4.3
3.6
4.3
4.3
3.6
2.9
3.6
1938
0.7
0.0
-0.7
-0.7
-2.1
-2.1
-2.8
-2.8
-3.4
-4.1
-3.4
-2.8
-2.1
1939
-1.4
-1.4
-1.4
-2.8
-2.1
-2.1
-2.1
-2.1
0.0
0.0
0.0
0.0
-1.4
1940
-0.7
0.7
0.7
1.4
1.4
2.2
1.4
1.4
-0.7
0.0
0.0
0.7
0.7
1941
1.4
0.7
1.4
2.1
2.9
4.3
5.0
6.4
7.9
9.3
10.0
9.9
5.0
1942
11.3
12.1
12.7
12.6
13.2
10.9
11.6
10.7
9.3
9.2
9.1
9.0
10.9
1943
7.6
7.0
7.5
8.1
7.4
7.4
6.1
4.8
5.5
4.2
3.6
3.0
6.1
1944
3.0
3.0
1.2
0.6
0.0
0.6
1.7
2.3
1.7
1.7
1.7
2.3
1.7
1945
2.3
2.3
2.3
1.7
2.3
2.8
2.3
2.3
2.3
2.3
2.3
2.2
2.3
1946
2.2
1.7
2.8
3.4
3.4
3.3
9.4
11.6
12.7
14.9
17.7
18.1
8.3
1947
18.1
18.8
19.7
19.0
18.4
17.6
12.1
11.4
12.7
10.6
8.5
8.8
14.4
1948
10.2
9.3
6.8
8.7
9.1
9.5
9.9
8.9
6.5
6.1
4.8
3.0
8.1
1949
1.3
1.3
1.7
0.4
-0.4
-0.8
-2.9
-2.9
-2.4
-2.9
-1.7
-2.1
-1.2
1950
-2.1
-1.3
-0.8
-1.3
-0.4
-0.4
1.7
2.1
2.1
3.8
3.8
5.9
1.3
1951
8.1
9.4
9.3
9.3
9.3
8.8
7.5
6.6
7.0
6.5
6.9
6.0
7.9
1952
4.3
2.3
1.9
2.3
1.9
2.3
3.1
3.1
2.3
1.9
1.1
0.8
1.9
1953
0.4
0.8
1.1
0.8
1.1
1.1
0.4
0.7
0.7
1.1
0.7
0.7
0.8
1954
1.1
1.5
1.1
0.8
0.7
0.4
0.4
0.0
-0.4
-0.7
-0.4
-0.7
0.7
1955
-0.7
-0.7
-0.7
-0.4
-0.7
-0.7
-0.4
-0.4
0.4
0.4
0.4
0.4
-0.4
1956
0.4
0.4
0.4
0.7
1.1
1.9
2.2
1.9
1.9
2.2
2.2
3.0
1.5
1957
3.0
3.4
3.7
3.7
3.7
3.3
3.3
3.7
3.3
2.9
3.3
2.9
3.3
1958
3.6
3.2
3.6
3.6
3.2
2.8
2.5
2.1
2.1
2.1
2.1
1.8
2.8
1959
1.4
1.0
0.3
0.3
0.3
0.7
0.7
1.0
1.4
1.7
1.4
1.7
0.7
1960
1.0
1.7
1.7
1.7
1.7
1.7
1.4
1.4
1.0
1.4
1.4
1.4
1.7
1961
1.7
1.4
1.4
1.0
1.0
0.7
1.4
1.0
1.4
0.7
0.7
0.7
1.0
1962
0.7
1.0
1.0
1.3
1.3
1.3
1.0
1.3
1.3
1.3
1.3
1.3
1.0
1963
1.3
1.0
1.3
1.0
1.0
1.3
1.3
1.3
1.0
1.3
1.3
1.6
1.3
1964
1.6
1.6
1.3
1.3
1.3
1.3
1.3
1.0
1.3
1.0
1.3
1.0
1.3
1965
1.0
1.0
1.3
1.6
1.6
1.9
1.6
1.9
1.6
1.9
1.6
1.9
1.6
1966
1.9
2.6
2.6
2.9
2.9
2.5
2.8
3.5
3.5
3.8
3.8
3.5
2.9
1967
3.5
2.8
2.8
2.5
2.8
2.8
2.8
2.4
2.8
2.4
2.7
3.0
3.1
1968
3.6
4.0
3.9
3.9
3.9
4.2
4.5
4.5
4.5
4.7
4.7
4.7
4.2
1969
4.4
4.7
5.2
5.5
5.5
5.5
5.4
5.7
5.7
5.7
5.9
6.2
5.5
1970
6.2
6.1
5.8
6.1
6.0
6.0
6.0
5.4
5.7
5.6
5.6
5.6
5.7
1971
5.3
5.0
4.7
4.2
4.4
4.6
4.4
4.6
4.1
3.8
3.3
3.3
4.4
1972
3.3
3.5
3.5
3.5
3.2
2.7
2.9
2.9
3.2
3.4
3.7
3.4
3.2
1973
3.6
3.9
4.6
5.1
5.5
6.0
5.7
7.4
7.4
7.8
8.3
8.7
6.2
1974
9.4
10.0
10.4
10.1
10.7
10.9
11.5
10.9
11.9
12.1
12.2
12.3
11.0
1975
11.8
11.2
10.3
10.2
9.5
9.4
9.7
8.6
7.9
7.4
7.4
6.9
9.1
1976
6.7
6.3
6.1
6.0
6.2
6.0
5.4
5.7
5.5
5.5
4.9
4.9
5.8
1977
5.2
5.9
6.4
7.0
6.7
6.9
6.8
6.6
6.6
6.4
6.7
6.7
6.5
1978
6.8
6.4
6.6
6.5
7.0
7.4
7.7
7.8
8.3
8.9
8.9
9.0
7.6
1979
9.3
9.9
10.1
10.5
10.9
10.9
11.3
11.8
12.2
12.1
12.6
13.3
11.3
1980
13.9
14.2
14.8
14.7
14.4
14.4
13.1
12.9
12.6
12.8
12.6
12.5
13.5
1981
11.8
11.4
10.5
10.0
9.8
9.6
10.8
10.8
11.0
10.1
9.6
8.9
10.3
1982
8.4
7.6
6.8
6.5
6.7
7.1
6.4
5.9
5.0
5.1
4.6
3.8
6.2
1983
3.7
3.5
3.6
3.9
3.5
2.6
2.5
2.6
2.9
2.9
3.3
3.8
3.2
1984
4.2
4.6
4.8
4.6
4.2
4.2
4.2
4.3
4.3
4.3
4.1
3.9
4.3
1985
3.5
3.5
3.7
3.7
3.8
3.8
3.6
3.3
3.1
3.2
3.5
3.8
3.6
1986
3.9
3.1
2.3
1.6
1.5
1.8
1.6
1.6
1.8
1.5
1.3
1.1
1.9
1987
1.5
2.1
3.0
3.8
3.9
3.7
3.9
4.3
4.4
4.5
4.5
4.4
3.6
1988
4.0
3.9
3.9
3.9
3.9
4.0
4.1
4.0
4.2
4.2
4.2
4.4
4.1
1989
4.7
4.8
5.0
5.1
5.4
5.2
5.0
4.7
4.3
4.5
4.7
4.6
4.8
1990
5.2
5.3
5.2
4.7
4.4
4.7
4.8
5.6
6.2
6.3
6.3
6.1
5.4
1991
5.7
5.3
4.9
4.9
5.0
4.7
4.4
3.8
3.4
2.9
3.0
3.1
4.2
1992
2.6
2.8
3.2
3.2
3.0
3.1
3.2
3.1
3.0
3.2
3.0
2.9
3.0
1993
3.3
3.2
3.1
3.2
3.2
3.0
2.8
2.8
2.7
2.8
2.7
2.7
3.0
1994
2.5
2.5
2.5
2.4
2.3
2.5
2.8
2.9
3.0
2.6
2.7
2.7
2.6
1995
2.8
2.9
2.9
3.1
3.2
3.0
2.8
2.6
2.5
2.8
2.6
2.5
2.8
1996
2.7
2.7
2.8
2.9
2.9
2.8
3.0
2.9
3.0
3.0
3.3
3.3
3.0
1997
3.0
3.0
2.8
2.5
2.2
2.3
2.2
2.2
2.2
2.1
1.8
1.7
2.3
1998
1.6
1.4
1.4
1.4
1.7
1.7
1.7
1.6
1.5
1.5
1.5
1.6
1.6
1999
1.7
1.6
1.7
2.3
2.1
2.0
2.1
2.3
2.6
2.6
2.6
2.7
2.2
2000
2.7
3.2
3.8
3.1
3.2
3.7
3.7
3.4
3.5
3.4
3.4
3.4
3.4
2001
3.7
3.5
2.9
3.3
3.6
3.2
2.7
2.7
2.6
2.1
1.9
1.6
2.8
2002
1.1
1.1
1.5
1.6
1.2
1.1
1.5
1.8
1.5
2.0
2.2
2.4
1.6
2003
2.6
3.0
3.0
2.2
2.1
2.1
2.1
2.2
2.3
2.0
1.8
1.9
2.3
2004
1.9
1.7
1.7
2.3
3.1
3.3
3.0
2.7
2.5
3.2
3.5
3.3
2.7
2005
3.0
3.0
3.1
3.5
2.8
2.5
3.2
3.6
4.7
4.3
3.5
3.4
3.4
2006
4.0
3.6
3.4
3.5
4.2
4.3
4.1
3.8
2.1
1.3
2.0
2.5
3.2
2007
2.1
2.4
2.8
2.6
2.7
2.7
2.4
2.0
2.8
3.5
4.3
4.1
2.8
2008
4.3
4.0
4.0
3.9
4.2
5.0
5.6
5.4
4.9
3.7
1.1
0.1
3.8
2009
0.0
0.2
-0.4
-0.7
-1.3
-1.4
-2.1
-1.5
-1.3
-0.2
1.8
2.7
-0.4
2010
2.6
2.1
2.3
2.2
2.0
1.1
1.2
1.1
1.1
1.2
1.1
1.5
1.6
2011
1.6
2.1
2.7
3.2
3.6
3.6
3.6
3.8
3.9
3.5
3.4
SMART Notebook
CPI and Inflation – Calculation Practice
Market Basket Year
2000
2001
2002
2003
Market Basket Price
$500
$515
$573
$545
1. Assume that Year 2000 is your base year.
a. Determine your CPI for 2000 _______________________ (Hint: Base years always have the same CPI.)
b. Determine your CPI for 2001 _______________________
c. Determine the rate of inflation from 2000 to 2001.
d. Is this a healthy rate of inflation?
2. Assume that Year 2000 is your base year.
a. Determine your CPI for 2002 ______________________
b. Determine your rate of inflation from 2001 to 2002.
c. Is this a healthy rate of inflation?
d. What might have caused this type of inflation rate to occur?
3. Assume that Year 2000 is your base year.
a. Determine your CPI for 2003 ______________________
b. Determine the rate of inflation from 2002 to 2003.
c. Is this inflation or something else?
4. In which year did consumers have the most purchasing power? (How can you tell?)
(5. Think about the relationship between inflation and the circular flow diagram. What impact might inflation have on the flow of goods, services and money in the economy?)
SMART Notebook
Page 1Page 2Page 3Page 4Attachments Page 1