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Objective: Students will learn the theories of why inflation occurs in the U.S. economy.

Objective: Students will learn the theories of why inflation occurs in the U.S. economy. Open your textbook to page 397 and read the section called In the News: “Who’s the Box Office Champion?” and then answer the question on the bottom. Who Measures Inflation???. The Government!

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Objective: Students will learn the theories of why inflation occurs in the U.S. economy.

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  1. Objective: Students will learn the theories of why inflation occurs in the U.S. economy. Open your textbook to page 397 and read the section called In the News: “Who’s the Box Office Champion?” and then answer the question on the bottom.

  2. Who Measures Inflation??? • The Government! • Consumer Price Index • Prepared by the government • They measure the prices of a “fixed” bundle of goods to determine how much prices have increased or decreased during a given time period

  3. ~1. Demand Pull Inflation~ ~2. Cost Push Inflation~ <Use pg. 398-399 in the textbook to define> From whose perspective is each? TWO THEORIES OF WHY INFLATION OCCURS!

  4. Why does inflation occur??? • 2 theories: • Consumers fault (buyers pull the price up) : Demand-Pull Inflation • Businesses fault (producers cost is pushed up): Cost-Push Inflation

  5. Caused by excessive demand for goods and services. Too many dollars chasing too few goods!!! Demand Pull Inflation PL AS A PL1 AD O/E1 O/E

  6. Classic Examples of Demand Pull Inflation • Tickle-Me-Elmo phenomenon • The “Wii” • Play Station 3 • Furby!

  7. Caused by excessive demand for goods and services. Too many dollars chasing too few goods!!! Demand Pull Inflation PL AS B PL2 A PL1 AD2 AD O/E1 O/E2 O/E

  8. Caused by rising cost of business, so businesses cut back production and price level increases Ex: Employees ask for a raise…so firms raise prices to offset the pay increase PL Cost-Push Inflation AS A PL1 AD O/E1 O/E

  9. Caused by rising cost of business, so businesses cut back production and price level increases Ex: Employees ask for a raise…so firms raise prices to offset the pay increase PL Cost-Push Inflation AS2 AS B PL2 A PL1 AD O/E2 O/E1 O/E

  10. Wrap-Up • Explain the 2 theories of inflation by: • Writing down the name of each theory • Come up with a visual that identifies each theory • Provide a description of why inflation occurs according to the 2 theories

  11. HOMEWORK: • Unit ‘6’ Review • Study for your test Friday!!! • Turn packet in!

  12. Homework: Inflation NotesRead pages 398-401 • Inflation Basics • Types of Inflation • Two Sources of Inflation • A Historical Look at Inflation and the Price Level • Impact of Inflation • Expected versus Unexpected Inflation • The Transaction Costs of Unexpected Inflation • Inflation and Interest Rates

  13. Question??? • Is the U.S. economy always a period of good times???

  14. Trough Peak Recession/contraction Recovery Real GDP Time Boom Bust Double Dipping Take a look at how the business cycle is drawn. The U.S. economy experiences periods of ups and downs So, let’s try to fill in the missing blanks of this diagram. The Business Cycle

  15. Using the words from the business cycle graph, write about a time in your life when you were going through some ups and downs. Trough Peak Recession/contraction Recovery Boom Bust Double Dipping Writing Prompt:

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