10
CONTEMPORARY ECONOMICS: LESSON 13.2 © SOUTH-WESTERN 1 LESSON 13.2 Inflation Describe the types of inflation, and identify two sources of inflation. Identify the problems that unexpected inflation creates. Objective s

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation Describe the types of inflation, and identify two sources of inflation. Identify

Embed Size (px)

Citation preview

Page 1: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.2 © SOUTH-WESTERN1

LESSON 13.2

Inflation Describe the types of inflation, and

identify two sources of inflation. Identify the problems that unexpected

inflation creates.

Objectives

Page 2: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.2 © SOUTH-WESTERN2

LESSON 13.2

Inflation inflation demand-pull inflation cost-push inflation nominal interest rate real interest rate

Key Terms

Page 3: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.23 © SOUTH-WESTERN

Inflation Basics

Inflation is an increase in the economy’s general price level.

Page 4: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.24 © SOUTH-WESTERN

Types of Inflation

Hyperinflation—extremely high inflation Disinflation—a reduction in the rate of

inflation Deflation—a decrease in the general

price level

Page 5: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.25 © SOUTH-WESTERN

Two Sources of Inflation

Demand-pull inflation is inflation resulting from increases in aggregate demand.

Cost-push inflation is inflation stemming from decreases in aggregate supply.

Page 6: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.26 © SOUTH-WESTERN

Consumer Price Index Since 1913

Page 7: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.27 © SOUTH-WESTERN

Impact of Inflation

Inflation reduced the value of the dollar and takes away confidence in the value of the dollar over the long term.

Page 8: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.28 © SOUTH-WESTERN

Expected Versus Unexpected Inflation Arbitrary gains and losses Expected inflation is of less concern than

unexpected inflation

Page 9: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.29 © SOUTH-WESTERN

The Transaction Costs of Unexpected Inflation Reduced productivity Increased transaction costs of market

exchange

Page 10: © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 13.21 LESSON 13.2 Inflation  Describe the types of inflation, and identify two sources of inflation.  Identify

CONTEMPORARY ECONOMICS: LESSON 13.210 © SOUTH-WESTERN

Inflation and Interest Rates

Nominal interest rate—the interest rate expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement.

Real interest rate—the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate.