Inflation When All Prices Rise Lesson 14 Inflation When All Prices Rise

Objectives Inflation is an increase in the general price level of goods and services caused by the supply of money increasing relative to the supply of goods and services. An increase in money income does not necessarily mean an increase in one’s ability to acquire goods and services.

Economic Concepts Inflation - a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency ( opposed to deflation). Price - what people pay when they purchase a good or service and what they receive when they sell a good or service.

Economic Concepts Goods - an object people want that they can touch and hold: examples: haircuts, car repair, medical check ups, mail delivery, teaching. Services - an action that a person does for someone else. Examples: haircut, car repair, medical check-ups, mail delivery, teaching. Income - what people earn in exchange for their work and is spent on goods, services, or taxes, or is saved.

Economic Concepts Most economists define inflation as a persistent increase in the prices of most or all goods and services over a period of time. Over long periods, inflation is caused by increases in the supply of money that are greater than increases in the output of goods and services This is the basis for the popular description of inflation as “Too much money chasing too few goods.

Economic Concepts A key point to remember is that an increase in the price of one or a few goods due to changes in supply or demand is not inflation. Inflation affects the prices of most or all goods and services, and in the final analysis, is a monetary phenomenon.