Chapter 3 Your Purchasing Power. Slide 2 What Is Inflation? 3-1 Inflation and the Value of Money Inflation is an increase in prices for goods and services.

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Presentation transcript:

Chapter 3 Your Purchasing Power

Slide 2 What Is Inflation? 3-1 Inflation and the Value of Money Inflation is an increase in prices for goods and services. Consumer Price Index (CPI) measures price changes over time. As inflation rises, the purchasing power of the dollar falls.

Slide 3 What Are the Types of Inflation? 3-1 Inflation and the Value of Money Disinflation occurs when the rate of rising prices slows down. Reflation occurs when high prices are followed by lower prices and then high prices again. Hyperinflation is rapidly rising prices that are out of control. Deflation is a decrease in prices.

Slide 4 What Are Causes and Effects of Inflation? 3-1 Inflation and the Value of Money Causes Demand-pull Cost-push Real-cost Effects Higher employment rates Less spending Less saving

Slide 5 Focus On... Fighting Inflation Monetary policy refers to the actions by the Fed to stabilize the economy. o Fed controls the discount rate, federal funds rate, and prime rate. Fiscal policy refers to the actions by the federal government to manage the economy. o Government raises/lowers taxes. 3-1 Inflation and the Value of Money

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