Inflation Inflation is generally defined as a continual increase in the overall level of prices. It is an increase in average prices that lasts at least a few months The most widely reported measurement of inflation is the Consumer Price Index (CPI).

The CPI compares the prices of a set of goods and services relative to the prices of those same goods and services in a previous month or year If the price level of consumer goods and services increases over a period of time, the consumer's purchasing power decreases (assuming, of course, that the consumer's disposable income and spending pattern remain the same).

The CPI Market Basket The CPI market basket represents all the consumer goods and services purchased by urban households. Price data are collected for over 180 categories, which BLS has grouped into 8 major groups. These major groups, with examples of categories in each, are as follows:

Food and beverages (ham, eggs, carbonated drinks, coffee, meals and snacks) Housing (rent of primary residence, fuel oil, bedroom furniture) Apparel (men’s shirts and sweaters, women’s dresses, jewelry) Transportation (new vehicles, gasoline, tires, airline fares) Medical care (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services) Recreation (television sets, cable TV, pets and pet products, sports equipment, admissions) Education and communication (college tuition, postage, telephone services, computer software and accessories) Other goods and services (tobacco and smoking products, haircuts and other personal care services, and funeral expenses)

The CPI is a Weighted Index Because each product group (energy, food, etc.) represents a different portion of an average consumer's spending pattern, each category is given a "weight" or what the BLS calls "relative importance."

Types of Inflation Demand-pull Inflation: This type of inflation occurs when total demand for goods and services in an economy exceeds the supply of the same. When the supply is less, the prices of these goods and services would rise, leading to a situation called demand-pull inflation. This type of inflation affects the market economy adversely during the wartime.

Cost-push Inflation: As the name suggests, if there is increase in the cost of production of goods and services, there is likely to be a forceful increase in the prices of finished goods and services. For instance, a rise in the wages of laborers would raise the per-unit costs of production and this would lead to rise in prices for the related products. This type of inflation may or may not occur in conjunction with demand-pull inflation

Hyperinflation: Hyperinflation is also known as runaway inflation or galloping inflation. This type of inflation occurs during or soon after a war. This can usually lead to the complete breakdown of a country's monetary system. However, this type of inflation is short-lived. In 1923, in Germany, inflation rates touched approximately 322 percent per month with October being the month of highest inflation.

Fiscal Inflation/Quanity Theory: Fiscal Inflation occurs when there is excess government spending. This occurs when there is a deficit budget. For instance, fiscal inflation originated in the US in the 1960s. At that time, Johnson was the president of the US. also faced fiscal type of inflation under the presidency of George W. Bush due to excess spending in the defense sector.

Deflation In contrast to the definition of inflation, deflation can be defined as 'the fall in the general price level of good and services in an economy'. The purchasing power of money increases, i.e., the real value of money increases and an individual can buy more quantity of goods than before with the same amount of money.

What types of people are most negatively affected by inflation and the depreciation of the dollar?

People with fixed incomes People with fixed incomes. Retired people often live off of a fixed income so they are negatively affected by inflation.

Lenders are generally hurt more than Borrowers during long inflationary periods, which mean that loans made earlier are repaid later in inflated dollars.

GDP The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy.

Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

The formula for determining GDP is C+I+G+X = GDP C = Personal consumption expenditures I = Nonresidential fixed investment G= Government expenditures X= New exports (Exports minus imports) Other Measures of U.S. Output

"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States

2014 GDP:$17.4183 trillion GDP increased 3.9 percent, or $650.2 billion, in 2014 2014 GDP per capita $54,678. Population:313.9 million

Real GDP is the current dollar GDP adjusted for inflation Real GDP is the current dollar GDP adjusted for inflation. It reflects the current value of all of the goods and services produced in a year, expressed the prices of the base-year. It might also be called "inflation-corrected" GDP or "constant dollar GDP

With 4. 4% of the world's population, the U. S. produced 22 With 4.4% of the world's population, the U.S. produced 22.3% of world GDP in 2012.

http://www.statista.com/statistics/268173/c ountries-with-the-largest-gross-domestic- product-gdp/

Recession A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)

Recession is a normal part of the business cycle; however, one-time crisis events can often trigger the onset of a recession. The global recession of 2008-2009 brought a great amount of attention to the risky investment strategies used by many large financial institutions, along with the truly global nature of the financial system.

As a result of such a wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered extreme set-backs and numerous government policies were implemented to help prevent a similar future financial crisis.

A recession generally lasts from six to 18 months, and interest rates usually fall in during these months to stimulate the economy by offering cheap rates at which to borrow money.

Economic Depression An economic depression is a severe downturn that lasts several years. Fortunately, the U.S. economy has not experienced an economic depression since The Great Depression of 1929, which lasted ten years.

The decline in the GDP growth rates were of a magnitude not seen since: 1930 -8.6% 1931 -6.5% 1932 -13.1% 1933 -1.3%. 1938 -3.4%

During the Depression, the unemployment rate was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 billion to $55 billion and world trade plummeted 65% as measured in dollars

An economic depression is so cataclysmic, it almost takes a perfect storm of events to create one.

Cause of Great Depression The Federal Reserve sought to slow down the stock market bubble in the late 1920s. However, once the stock market crashed, the Fed kept raising interest rates to defend the gold standard. Instead of pumping money into the economy, and increasing the money supply, the Fed allowed the money supply to fall 30%

This policy created massive deflation, where prices dropped 10% each year. As people expected lower prices, they delayed purchases. Real estate prices plummeted 25%, and people lost their homes.

https://www.youtube.com/watch?v=IQ_lizW5 zSI

How did the US get out of the GREAT DEPRESSION?