2. Measuring inflation  In order to measure inflation we start with the price level or relative magnitude of prices at one point in time.

3. Types of Inflation  Deflation  Creeping Inflation  Galloping Inflation  Hyperinflation

4. Deflation Post World War I and Great Depression  Decrease in general price level

5. Galloping Inflation Former Soviet Union  Can go as high as 100 to 300 percent  Switch from communism to capitalism was not easy

6. Hyperinflation Hungary post WWII  500 percent and above  Last stage before a total monetary collapse  828 octillion pengos equaled 1 prewar pengo

7. Causes of Inflation  Demand is higher than ability to produce  Federal government’s deficit spending  Increase in money supply/faster than GDP  Rising input costs Ex. Labor and/or resources

8. Consequences of Inflation  Decrease in value of the dollar  Who does this hurt most?  Speculation  Alters distribution of income..borrowers and lenders  Change in spending habits. 80’s