InflationChapter 8, Unit 4, Part IV

Inflation: A general rising of the level of prices (not all

P rise at the same rate) Rule of 70 also works for doubling time for

price level

Ex: How long would it take for prices to double if the inflation rate is 10%?

7 years

Causes of Inflation Demand-Pull inflation

Spending increases faster than production Too much money chasing too few goods Too many consumers with ready cash or

expectations for spending Too many are employed causing wage inflation

Cost-Push or Supply-Side Inflation Prices rise because of rise in per-unit production

costs Not enough supply of goods & services Wage-push can occur as result of union strength Supply shocks may occur with unexpected

increases in the price of raw materials Political cuts in supply Could cause both output and employment to

decline—real income declines.

Classwork—Page 157 Questions: 6 8 10 14 15