INFLATION Part 1.

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Presentation transcript:

INFLATION Part 1

Turn to the next empty page & label it: Inflation Standard: SSema1a-d Goals: I will be able to explain how inflation and economic growth are related.

INFLATION There are several different types of inflation: Inflation: general rise in prices overtime Deflation: general fall in prices overtime Hyperinflation: inflation in excess of 500% per year Stagflation: period of slow economic growth combined with inflation Creeping inflation: relatively low rate of inflation; about 1-3% annually Types of inflation

Base Year: year that is the basis of comparison INFLATION Types of inflation Market Basket: selection of goods & services that are commonly purchased by consumers (about 364 items) Consumer Price Index (CPI): used to measure price changes of the market basket Base Year: year that is the basis of comparison

INFLATION CPI= Inflation = Rate Types of inflation Total Cost of Market Basket this Period Total Cost of Market Basket Base Period CPI (this period)- CPI(previous period) CPI(previous period) CPI= X 100 Inflation Rate = X 100

Using the CPI Formula, determine the CPI.

Using the CPI Formula, determine the CPI. BASE YEAR: CPI= $1,792.00 x100 $1,792.00 CPI= 1 x 100 = 100%

1. What is the inflation rate from the base year to 1998? 2. What is the inflation rate from the base year to June 2003? 3. What is the inflation rate from 1998 to 2003? 63% 83.7% 12.7%--This means that from 1998 to 2003 prices have increased 12.7%