 Inflation: a general increase in the prices of goods and services in an entire economy over time.  *Note* If for instance Canada’s has an annual inflation.

Slides:



Advertisements
Similar presentations
Mr. Bammel AP Macroeconomics Inflation (adapted from South-Western Publishing 2004) In other words… I didnt write this. I just copied and pasted.
Advertisements

Copyright©2004 South-Western 11 Measuring the Cost of Living.
Chapter 07: Inflation Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13e.
Inflation Chapter 7 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Principles of Economics: Macroeconomics.
AP Macroeconomics Inflation (adapted from South-Western Publishing 2004)
© 2007 Thomson South-Western. 1 Measuring the Cost of Living  Inflation refers to a situation in which the economy’s price level is rising.  The inflation.
Welcome To Macroeconomics Econ 2301 Dr. Jacobson Mr. Stuckey Chapter 7 Chapter 7.
Annual Inflation Rate- Time for Prices to Double-
Measuring the Cost of Living
Inflation and Unemployment By: Lauren, Raunak, Paul, Hussein, and Thomas.
Introduction to Macroeconomics Chapter 5. Measuring Changes in Prices.
Measuring the Cost of Living Chapter 23 Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the.
Chapter 10 Inflation and Unemployment
1 Understanding Economics Chapter 10 Inflation and Unemployment Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved. 3 rd edition by Mark.
Ms. Park.  Amy  What’s the difference between CPI and GDP deflator?  What do you use when you want to calculate Real income? Real GDP?
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 8 Inflation.
10 pt 15 pt 20 pt 25 pt 5 pt 10 pt 15 pt 20 pt 25 pt 5 pt 10 pt 15 pt 20 pt 25 pt 5 pt 10 pt 15 pt 20 pt 25 pt 5 pt Inflation UnemploymentInflationUnemployment.
Back to the Future GDP, Unemployment, etc..
{ Measuring Inflation Warning: May not be suitable for SL students.
Unit 2-3: Macro Measures 1.
Chapter 11 Measuring the Cost of Living
Measuring the Cost of Living-6
Principles of Macroeconomics: Ch 11 Second Canadian Edition Chapter 11 Measuring The Cost of Living © 2002 by Nelson, a division of Thomson Canada Limited.
Section 3B- Modules 14/15- Inflation and the Business Cycle.
© 2007 Thomson South-Western. Measuring the Cost of Living Inflation ( 物價膨脹 ) refers to a situation in which the economy ’ s overall price level is rising.
Measuring the Cost of Living
Measuring the Cost of Living Week 3 1Pengantar Ekonomi 2.
Inflation By.. Brent, Bob, Vikrant & Leslie. What is Inflation? Inflation is defined as a sustained increase in the general level of prices for goods.
1 Objective – Students will be able to answer questions regarding inflation. SECTION 1 Chapter 7- Inflation © 2001 by Prentice Hall, Inc.
$Inflation = an increase in the average price level $When there is a lot of money in the economy, each dollar buys you less $Your purchasing power is.
Copyright©2004 South-Western Measuring the Cost of Living.
What do economists Look at when evaluating price changes over time?
Ms. Park.  Serena  Consumption expenditures = $600  Exports = $75  Government purchases of goods and services= $200  Construction of new homes =
CHAPTER 11: ECONOMIC CHALLENGES
Copyright©2004 South-Western 24 Measuring the Cost of Living.
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Slide Measuring the Price Level and Inflation.
Measuring the Cost of Living
Chapter 8 Inflation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
AP Macroeconomics. Measuring the Cost of Living Inflation ( π ) –occurs when the economy’s overall price level is rising. Inflation Rate ( π %) –the percentage.
CHAPTER 24 MEASURING THE COST OF LIVING.  Inflation  Inflation refers to a situation in which the economy’s overall price level is rising. inflation.
Inflation and Unemployment. Day 1 Focus Inflation, its two measures – the CPI and the GDP – and their limitations Nominal and real incomes, both for individuals.
Harcourt Brace & Company MEASURING THE COST OF LIVING Chapter 24.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved Chapter 5 Inflation and the Price Level.
Annual Inflation Rate- Time for Prices to Double-
Macroeconomics Inflation Nominal GDP Structural Unemp. C+I+G+Xn
Inflation.. Measuring the Cost of Living Inflation ( π ) –occurs when the economy’s overall price level is rising. Inflation Rate ( π %) –the percentage.
Chapter 11 Inflation and Unemployment Inflation  Is the general increase in the prices of goods and services in an entire economy.  For ex: an annual.
1 Chapter 17 Inflation Key Concepts Key Concepts Summary Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western College Publishing.
Prices and Inflation Price Indexes and Inflation GDP Deflator Inflation and Interest Rates Misconceptions about Inflation Costs of Inflation.
1 Inflation ©2006 South-Western College Publishing.
CALCULATING INFLATION: PRICE CHANGE, CPI, AND THE GDP DEFLATOR.
 1. Proportional Tax: Tax for which the percentage of income paid in taxes remains the same for all income levels. (EX: Joe makes $20k/yr and pays 25%
Copyright©2004 South-Western 24 Measuring the Cost of Living.
Economics INFLATION and Its AFFECTS. Measuring the Cost of Living Inflation ( π ) –occurs when the economy’s overall price level is rising. Inflation.
Inflation The Right Start. Inflation: What is It? Inflation is a sustained rise in the average price level of all goods and services in an economy. Causes.
Economics. Measuring the Cost of Living Inflation ( π ) –occurs when the economy’s overall price level is rising. Inflation Rate ( π %) –the percentage.
Measuring the Cost of Living 1. The Consumer Price Index Consumer price index (CPI) –Measure of the overall level of prices –Measure of the overall cost.
Consumer Price Index. Federal Government’s Main Goals One of the federal government’s main goals has been to maintain price stability. If the price of.
Measuring the Cost of Living
Measuring the Price Level and Inflation Chapter 9.
11 Measuring the Cost of Living. InflationInflation – increase in overall price level Deflation – decrease in overall price level Disinflation – decrease.
Ms. Park.  Jason Z  Cassie  What is CPI?  A measure of price changes for a typical “shopping basket” of consumer products.  To determine what typical.
Copyright©2004 South-Western 24 Measuring the Cost of Living.
Defining & Calculating Inflation AP Macroeconomics.
INFLATION AP Economics. Measuring Inflation Country and Time- Zimbabwe, 2008 Annual Inflation Rate- 79,600,000,000% Time for Prices to Double hours.
Take Out: Unemployment Worksheet from the Front  Extras are up front if needed  Agenda for today  Examples of Calculating Unemployment  Introduction.
Measuring the Cost of Living. u Inflation refers to a situation in which the economy’s overall price level is rising. u The inflation rate is the percentage.
 Inflation  Inflation refers to a rising general level of prices.  It does not mean that all prices are rising. Even during periods of rapid inflation,
Economics 12 Inflation & Unemployment
Measuring the Cost of Living
Presentation transcript:

 Inflation: a general increase in the prices of goods and services in an entire economy over time.  *Note* If for instance Canada’s has an annual inflation rate of 3%, this doesn’t mean that all prices are rising. Some prices are rising, others remain constant, while still others may be falling  The overall rise in prices is 3%  Deflation: a general decrease in the level of prices and income  Hyperinflation: a situation in which prices increase rapidly and inflation is out of control (e.g. prices doubling/tripling within a month) 9.1 Inflation

 Consumer Price Index: A measure of price changes for a typical basket of consumer products  Stats Canada surveys typical Canadian households’ buying habits every few years so that it can determine what they buy The Consumer Price Index

Consumer Price Index (CPI)

 Item Weights: the proportions of each good in the total cost of the basket of consumer goods used to calculate CPI  Base Year: the survey year used as a point of comparison in subsequent years Consumer Price Index (CPI)

Consumer Price Index Weights

Nominal versus Real Income

 Consumer Differences  One consumer might buy a lot of books, while another doesn’t, so CPI takes the average of every person, making it appear like every person likes to read a bit  Changes in Spending Patterns  When an object’s price falls (e.g. cell phones in the 2000’s) consumers will likely choose to buy more  Product Quality & New Products  Index cannot reflect changes in quality or introduction of new products Limitations of the CPI

 GDP Deflator – another indicator of price changes, but measures changes in all goods and services  CPI simply looks at a small number of consumer items The GDP Deflator

Nominal vs Real GDP

 High inflation rates is a serious problem – it redistributes purchasing power among different groups that can be:  Economically harmful  Unjust  Households also increase nominal income when inflation occurs  If percentage of inflation is greater than that of nominal income, then that household’s purchasing power declines  If nominal income rises faster than inflation, then a household can actually benefit from inflation Inflation’s Effects

The Inflation Rate Deflation

 Cost-of-living-adjustment clauses: provisions for income adjustments to accommodate change in price levels, which are included in wage contracts  Fully Indexed Incomes: nominal incomes that automatically increase by the rate of inflation  Partially Indexed Incomes: these people lose the most from inflation, as only a portion of their income rises  Fixed Incomes: nominal incomes that remain fixed at some dollar amount regardless of the rate of inflation Incomes

 If a lender lends funds at an interest rate that is not adjusted for inflation, the lender may lose out  Interest rate is “prime plus 1%” – prime can always change – right now, “prime” = 3%  This is the inflation premium  Nominal Interest Rate: interest rate expressed in money terms  Real Interest Rate: the nominal interest rate minus the rate of inflation Borrowing & Lending