1. Standard 2 Understand the fundamental concepts relevant to the institutions, structure, and functions of a national economy SS.912.E.2.7 Identify the impact of inflation on society

2. Milton Friedman quotes:
“Inflation is a disease, a dangerous and sometimes fatal disease, a disease that if not checked in time can destroy a society.”
Inflation is “always and everywhere a monetary phenomenon”
“Inflation occurs when the quantity of money rises appreciably more rapidly than output, and the more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation.”

3. Widely held, but false, explanations for the cause of inflation:
Unions
Business
Imports/foreign countries
Low productivity
Supply shocks, i.e. oil

4. The core “problem” with inflation is that it distorts information and thereby inaccurately changes decision-making
The worst kind is unexpected inflation

5. Video: Ducktales inflation

6. Costs of inflation:
Shoeleather costs- lost time and convenience of holding less currency while putting more money in the bank (presumably to accrue interest to offset inflation)
Menu costs- the costs of changing prices
Relative-price variability- erroneous relative prices incorrectly misallocate resources
Tax distortions- higher nominal incomes push individuals into higher tax brackets
Confusion and inconvenience

7. The end result is less productivity
People spend more time trying to minimize the effects of inflation instead of producing goods and services

8. Video: Milton Friedman Free to Choose-inflation

9. I’ve also heard deflation is bad.
Why?

10. Video: ABC News deflation

11. So what’s the best scenario?
Low and steady inflation
Fed usually targets 1.5 to 2.0% per year