Economics Inflation
High rate of inflation
-Bad unanticipated -consumers real income decreases -fewer goods are purchased -quantity demanded decreases -unemployment increases *the economy suffers😣
Low rate of inflation
-Good and anticipated -prices are high compared to wages -producers make high real profits -production expands more workers are hired -workers increase spending -quantity demanded increases *economy prosepers😀
What is in the CPI's basket?
-housing -food/beverages -transportation -medical care -apparel -recreation -education -communication
Define inflation
A general rise in prices
Consumer price index
A measure of overall cost of goods and services bought by typical consumers
Inflation
A sustained upper movement of average level movement
Annual inflation rate
CPI in year 2- CPI in year 1➗ CPI in year 1. ✖ 100
Translating prices from normal to real
Compare apples to apples
How to calculate the CPI
Current year price level -----------------------------x100 Base year price level
COLA
Earning appropriate pay raises
Price stability
Economic policy objective
What is inflation a result of?
Fewer goods being produced
Deflation
Negative inflation rate Sustained downward movement of average level prices
Stagflation
People are willing and able to buy more output than the economy can produce because wages increase causing prices and costs of goods to go up abrupt increase in the cost of raw materials
Which two groups are hurt by inflation?
People on a fixed income and people who save their money in a bank
Which two groups are helped by inflation?
People who borrow money People on an adjustable rate income
What is the inflation rate?
Percent of the change in price level from one period to the next. Reflects the speed at which price changes
Inflation rate
The percent change in the price index from the preceding period
BLS and CPI
The BLS identifies a market basket of goods and services the typical consumer buys The BLS conducts monthly consumer surveys to set the weights for the prices of those goods and services
Policy target
The goal is to have stable prices which means low inflation
Uses for CPI
Policy target Cola Translate prices from normal to real
The bureau of labor statistics
Reports the CPI each month
Disinflation
Represents a time period when inflation rates are positive but declining over time.
Price index
Used to measure the average level of prices or price level