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