Chapter 13.2

BELL RINGER 05.07.2015Write complete question and answer on your Bell Ringer form.

Estimate the percentage of increase in price for a McDonald’s cheeseburger today. What is the percentage of increase in price for a milk shake?

ECONOMICSMay 7, 2015

Chapter 13: Economic ChallengesSection 13.2: Inflation

EFFECTS OF RISING PRICES13.2

Inflation is the general rise in prices, no the rise in value.

Another way to look at inflation is that the purchasing power of our money has decreased.

PRICE INDEXES13.2

In order to calculate the price level of our economy, economists turn to a price index which records how prices change over time.

PRICE INDEXES13.2

The Consume Price Index (CPI) is developed by the Bureau of Labor Statistics (BLS) every month to represent the market basket of the typical urban consumer.

PRICE INDEXES13.2

The inflation rate measures the rate of change in prices over time.

The BLS compares today’s data to that during 1982-1984, using the market basket list that was developed in 1993-1995.

TYPES OF INFLATION13.2

The core inflation rate indicates changes in prices, excluding food and energy prices.

Out of control inflation is referred to a hyperinflation.

THEORIES OF INFLATION13.2

The quantity theory states the cause of inflation is that there’s too much money in the economy.

The demand-pull theory states that an excess of demand drives prices higher.

THEORIES OF INFLATION13.2

The cost-push theory puts the cause of inflation on producers raising prices to meet costs.

The wage-price spiral refers to when the cost of wages pushes prices higher, which leads to higher wages.

EFFECTS OF INFLATION13.2

Inflation erodes the purchasing power of one’s money.

Inflation, at times, erodes actual disposable income. This hits those on fixed incomes especially hard.

EFFECTS OF INFLATION13.2

Inflation eats away at profits from interest rates, such as savings accounts.

EFFECTS OF INFLATION13.2

Comparing the research of Phelps and Friedman to that of AW Phillips, we now know that there is no correlation between unemployment rates and inflation rates.

CHECK QUESTION 13.2Write complete question and answer on your Bell Ringer form.

What causes a wage-price spiral and what can it lead to?