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Megan Wolfe10161

on 4 May 2010

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Transcript of INFLATION

Double click anywhere & add an idea INFLATION- general increase
in prices INFLATION PURCHASING POWER- the ability
to purchase goods and services The Effects of Rising Prices Price Indexes Does not compare individual prices...
They compare price levels PRICE INDEX- the measurment
that shows how the average price
of the standard group of goods
changes over time Produces an average
that economists
can compare to earlier ones to
see the change in price Helps consumers and business
people make economic decisions THE COMSUMER PRICE INDEX (CPI)- the price
index determined by measuring
the price of a standard group of
goods meant to represent the
"market basket" of a typical
urban consumer MARKET BASKET- a represntative collection
of goods and services INFLATION RATE- the percentage
rate of change in price level over time CPI=updated costs/base period cost x 100 CoRE INFLATION RATE- the rate of inflaton excluding the
effects of food and energy prices HYPERINFLATION- inflation that is out of control CAUSE OF INFLATION No one can explain every instanse of risng
prices... QUANTITY THEORY- theory that too much
money in the economy cause inflation DEMAND-PULL THEORY- theory that inflation
occurs when demand for goods and services
exceeds existing supplies COST-PUSH THEORY- theory that inflation occurs when
producers raise prices in order to meet increased costs Cost-Push inflation can lead to a spiral
of even higher prices WAGE-PRICE SPIRAL- the process by
which rising wages causes higer prices and higher prices causes higher wages THE EFFECTS OF INFLATION Effects can mainly be seen
in purchasing power, income, and
intrest rates for inflation A dollar will not
buy the same amount
of goods it could in past
years Wages increase with inflation
rate people get paid the same FIX INCOME- income that does not
increase even when prices go up People receive given interest
on their money in saveings, but
true return depends on the rate
of inflation RECENT TRENDS Americans over the age of 30 years
has experienced positive inflation rates for
most of their lifes Low unemployment leads to
higher inflation cause companies
compete for few workers by
offering higher wages DEFLATION- a sustained drop in
the price level
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