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NEXT…Inflation Terms

NEXT…Inflation Terms. Take out Assingment #5 – “Inflation Terms” We’re going to go over it now. Inflation. A gradual increase in prices over time. The U.S. economy hopes to maintain an annual increase in inflation at 3-4% annually. Creeping Inflation.

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NEXT…Inflation Terms

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  1. NEXT…Inflation Terms • Take out Assingment #5 – “Inflation Terms” • We’re going to go over it now.

  2. Inflation • A gradual increase in prices over time. The U.S. economy hopes to maintain an annual increase in inflation at 3-4% annually.

  3. Creeping Inflation • Inflation at 2-3%...the U.S. has come to expect at least this much inflation every year.

  4. Deflation • Although prices increase gradually over time, there are times when prices can fall and decrease. For example, there was a period of deflation when prices fell over 50% during the height of the Great Depression.

  5. Unanticipated Inflation • Inflation at a rate which was greater than the rate expected for that period of time. • *Creditors & individuals that live on Fixed Income=losers!!! • *Debtors=winners!!!

  6. Unpredictable Inflation • Inflation rate fluctuates unpredictably • Does not have a stabilizing effect on the economy – hurts the economy

  7. Anticipated Inflation • Inflation at a rate equal to the rate expected in that period. When inflation is fully anticipated, there are no winners or losers.

  8. “COLA” (cost of living adjustment) • Most wage earners protect themselves by having a clause in their contract where inflation must be taken into account. If there is higher inflation, then their income must increase accordingly.

  9. Hyperinflation • A very rapid rise in the price level. Prices are rising way to fast.

  10. Stagflation • Inflation coupled with stagnate growth (low GDP).

  11. Nominal Value • The value of a good or service before inflation is taken into consideration

  12. Real Value • The value of a good or service after inflation is taken into account.

  13. Inflation Review:Discuss with your partner: • Which inflation stage(s) are we in right now – explain and give an example. • What is the difference between Nominal and Real value? • What is COLA and why is it important? • Why do we need to adjust for inflation? • What are the three U.S. macro economic goals?

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