By Popular Demand… Inflation versus Deflation- What’s happening!?

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Presentation transcript:

By Popular Demand… Inflation versus Deflation- What’s happening!?

INFLATION  Your money losing value.  If your favorite snack costs a dollar this year, but there is inflation then next year your snack may cost 10 dollars!  The only thing that truly changed is your money which has declined in value.  Inflation is not caused by raising prices- rising prices are a symptom of inflation.  Inflation is caused by too much money in circulation in relation to the things we want to buy!

EXAMPLE!  5 people are stuck on a life raft. One person has an orange! One person on the raft has a dollar… how much is that orange worth?!  Now someone else on the raft has found ten dollars…. Now how much is that orange worth?!

Task Summary: Half of the class will get one greenback. 1 bill = 1 greenback (like a dollar bill) and 1 greenback can buy a nice dinner in a restaurant.

Task Summary: Half the class loans their greenbacks to the other half Lenders: write a note entitling you to 3 greenbacks from the borrowers in two months (interest)

Task Summary: A month has gone by, and times are tough. Normally you all would get two greenbacks, but now you get only 1 for salary. Debtors need to pay back 1/3 of their debts (1 greenback).

Task Summary: If there is inflation, next month you’ll get 10 greenbacks for salary and can easily pay off your debts (which is how much again?) BUT keep in mind, if there is inflation each greenback will now buy only bubble gum; you would need 100 greenbacks for a dinner. If there is deflation next month you’ll only get 1 greenback, but it will buy you 2 dinners.

Task Summary: Debtors - do you prefer inflation or deflation? Why? Creditors - do you prefer inflation or deflation? Why?

Looking back… inflation under Grant

Inflation and Deflation under Grant Hard MoneyCheap Money Preferred by creditors.Preferred by debtors. Want less money in circulation, creating deflation. Want more money in circulation, creating inflation. Do not want silver coinage. Back money by gold. Want more silver coinage and inflation. Deflation may create or prolong a depression for the short term. Inflation may destroy the country’s credit rating and currency for the long term. Typically Republicans in 1870’s. Less popular. Typically Populists/Democrats in the 1870’s. More popular.

Still lost? Let’s Watch!  4:40-5:50, 7:06-8:31