Health of the Economy Inflation What is Inflation

Health of the Economy Inflation

What is Inflation? �Inflation is a rise in prices relative to money available. In other words, you can get less for your money than you used to be able to get �Example: You have been paying $2 for a soda from Wawa everyday for a year. After a while the price is raised to $2. 25

What is the Consumer Price Index? �The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for a market basket of goods and services. � Market basket – a fixed list of items used to track inflation �Used for a long period of time (base year is 1984) �Formula: New Price/ Old Price x 100 �$1. 31/$1. 00* 100= 131

What is the Inflation Rate �The rate of change of prices as indicated by the price index � Normally calculated in a one year period �Inflation Rate= Final Year-Initial Year/ Initial Year x 100 �CPI 2004 is 133, CPI 2005 is 137 �Inflation Rate= 137 -133/133 x 100= 3% Inflation Rate �The US goal is 1 -3%

Examples? ?

Examples Movie Tickets � 1960: 69 cents � 1980: $2. 69 � 2000: $5. 39 � 2011: $7. 96 Bread � 1960: 20 cents � 1980: 53 cents � 2000: $1. 00 � 2011: $1. 41

Examples Jay-Z’s Wealth Henry Ford’s Money �Today: $42 Million � 1947: $18. 5 Billion � 1965: 5. 7 Million � 1913: 1. 8 Million � 1975: $46 Billion � 2013: 199 Billion

Hyperinflation �Extremely rapid or out of control inflation �After losing in WWI, Germany’s economy suffered a great deal because of the payments they were required to make to the victors �To combat this the German government decided to print money to cover the cost � WORST IDEA POSSIBLE! � THE RESULTS WERE HORRIBLE

Results �A loaf of bread rose to 200, 000, 000 marks �Restaurants did not print menus because by the time food was ordered and served the price went up �People would shop with wheelbarrows full of money