Time to award some candy!!!

1. Time to award some candy!!! Make your predictions: • How much did a gallon of gas cost in 1976? • $.67 • How much did a two liter bottle of pop cost in 1995? • $1 • How much did a pound of bananas cost in 1980? • $.34

2. Inflation

3. Basics • Inflation • General rise in prices over time • De-valuing of currency • One dollar today will not buy as much as one dollar did 20 years ago

4. Causes • Increase in supply of money • Printing of money causes supply to go up

5. Causes • Increase in demand for products • Causes prices to go up

6. Causes • Increase in input costs • Energy costs, labor costs, natural resources, etc • Spiraling Theory • Inflation causes prices for goods and services to go up, so… • Workers demand more money, so… • Employers raise prices for goods and services, so… • Workers demand more money, so…. • Employers raise prices for goods and services, so…

7. How It’s Measured • Price Index • Comparison of prices between two points in time • Cost of milk today vs. cost of milk in 1983 • CPI (Consumer Price Index) • Most common price index used to measure inflation • Compares the cost of hundreds of basic items (food, gas, household products, etc)

8. What does it tell us? • Too much inflation = economy growing too fast • Prices are going to high to fast for people to keep up • There’s too much money in the economy • Negative inflation (deflation) = economy growing too slow • Prices are going too low to fast for companies to make profits • Ideal inflation = 2 to 3%

9. Quick Review • How does inflation affect the value of currency? • De-values it • How do we measure inflation? • Use price indices (CPI) • How can we use inflation to determine the health of the economy? • Too much inflation = growing too fast; negative inflation = growing too slow • Ideal is 2-3% inflation