6. Ch 13 sec 3: Inflation Inflation is an extended rise in the economy’s overall price level. When prices rise, the dollar can buy less; thus, it loses purchasing power.

7. We can adjust prices to reflect effect of inflation. For example, in 1915 JD Rockefeller’s net worth was $900 million dollars. His net worth, adjusted for inflation, would be $189 billion dollars today.

8. Model T

9. We measure the rate of inflation with the Consumer Price Index. The CPI shows the average change in price of a wide variety of goods and services. It is an average.

10. The typical annual (yearly) rate of inflation in the US is 3%.

11. Some nations have experienced hyperinflation, which is a dangerously high rate of inflation.

12. Hyperinflation: Yugoslavia, 1993 5 quadrillion percent rate of inflation (That’s 5,000,000,000,000,000%!) Typically 1 Loaf of bread costs 1 Dinara, and imagine your life-savings was one million Dinara. Nov. 12, 1993: 1 Loaf cost 1 million Dinara

13. Nov. 23, 1993: 1 Loaf cost 6.5 million Dinara

14. Dec. 15, 1993: 1 Loaf cost 3.7 billion Dinara

15. Dec. 29, 1993: 1 Loaf cost 950 billion Dinara

16. Jan. 4, 1994: 1 Loaf cost 6 trillion Dinara!

17. Post WWI hyperinflation in Germany

32. Late 1960’s: Demand pull inflation due to Vietnam War.

33. US tries to supply troops while keeping everyone at home supplied.

36. Cost Push Inflation: 1973 Yom Kippur War

37. US support for Israel leads to Arab oil embargo

39. Scarcity of gas leads to high prices for gas…

40. …leads to high prices for everything else.