1 / 11

Chapter 13 Section 2

Chapter 13 Section 2. Inflation. Effects of rising prices. Inflation – general increase in prices Purchasing power – the ability to purchase goods and services. Price Indexes. measurement that shows how the average price of a standard group of goods changes over time

elda
Download Presentation

Chapter 13 Section 2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 13 Section 2 Inflation

  2. Effects of rising prices • Inflation – general increase in prices • Purchasing power – the ability to purchase goods and services

  3. Price Indexes • measurement that shows how the average price of a standard group of goods changes over time • Helps consumers and business people make economic decisions

  4. Consumer Price Index • Computed each month by the Bureau of Labor Statistics • Determined by measuring the price of a standard group of goods meant to represent the “market basket” of a typical urban consumer • Market Basket – representative collection of goods and services • Market basket is divided into 8 categories of goods and services

  5. Market Basket • Items in the market basket are updated about every 10 years to account for shifting consumer buying habits • Inflation Rate – percentage rate of change in price level over time

  6. Determining the CPI • The BLS establishes a base period to which it can compare current prices • CPI = Updated Cost X 100 base period cost

  7. Types of Inflation • When the inflation rate exceeds 5%, the inflation rate itself becomes unstable and unpredictable • Core Inflation Rate – the rate of inflation excluding the effects of food and energy prices • Hyperinflation – inflation that is out of control

  8. Causes of Inflation • Quantity Theory of inflation states that too much money in the economy causes inflation • Demand Pull Theory states that inflation occurs when demand for goods and services exceeds existing supplies • Cost Push Theory states that inflation occurs when producers raise prices in order to meet increased costs

  9. Effects of Inflation • It’s a major economic problem! • It affects Purchasing Power… money today can’t buy what it would have a year ago • Income… inflation sometimes erodes income • Interest Rates…people receive a given amount of interest on money in their savings accounts, but their true return depends on the rate of inflation

  10. Review Questions • How does inflation affect purchasing power? • What is the purpose of the Consumer Price Index? • Compare/Contrast Demand-Pull inflation and Cost-Push Inflation

More Related