Hershey Bar U S National Average Hershey Bar
Hershey Bar U. S. National Average Hershey Bar 1908 . 02 1936 . 05 1955 . 08 1970 . 15 1986 . 40 1995 . 65 2004 . 80 2014 . 89
Then…
Inflation “I remember when a movie only cost a nickel……”
Inflation Simulation – Where did inflation come from? Round # 1 – Round # 2– Round # 1 – Round # 3– Economy is doing really well = low unemployment. Everybody spends more of their disposable income as consumer confidence is high! Round # 2 – Lower interest rates can cause inflation by making it less expensive to borrow money. Round # 3 – Government spending increases or U. S. Government can buy bonds from bondholders.
Inflation Simulation Critical. Thinking Questions 1. How were students who saved in round 1 and 2 hurt by inflation? • The value of their dollar went down each round. • Round #1 money is worth less in round #2 2. How does inflation affect a person on a fixed (unchanging) income? • Purchasing power decreases every year. • Their fixed income buys less because of the gradual increase in prices.
Anticipated v. Unanticipated Anticipated: Healthy, plan accordingly. vs. Unanticipated: Unpredictable, hurtful.
Creeping: 1 -3% a year and healthy (Anticipated)
Chronic. Changes month to month Ex. Recent gas prices 11/16/10 $3. 07 5/09/11 $4. 29 • 39% increase. 10/9/12 11/28/12 4. 75 3. 83 • 24% decrease.
Hyper 100 -500% in 1 month (Can crush banks and savings accounts) Ex. Natural disasters can cause hyper inflation
Causes of Inflation Demand-Pull: The. Wage-Price demand. Relationship for the goods goes up so prices “Spiral” of the good go up as well. -Inflation causes people to demand higher wages. -People spend more money from their wage increases, which causes more inflation. The cycle repeats itself…. Cost-Push: Cost of producing goods pushes the price of the -Inflation causes people to demand higher wages. goods up. -People spend more money from their wage increases, which causes inflation. ex. Min wage increase
Who’s hurt/helped by inflation? 1. Your friend rents an apartment with a three year Gain The price of their rent will not rise for three years while local rents increase for inflation. lea
Who’s hurt/helped by unanticipated inflation 2. You borrow money from Chase Bank at 3% for 30 years. Gain You are paying back a fixed interest lower than rate of inflation.
Who’s hurt/helped by inflation? 3. A retired man lives entirely on income from Social Security. Gain or break even. Social Security adjusts to inflation because it has a COLACost of Living Adjustment
Who’s hurt/helped by inflation? 4. Banks issue a lot of long-term fixed-rate loans. Hurt They are paid back in fixed interest rate. If inflation % exceeds the rate of loan, banks are being paid back in dollars that are worth less than inflation rate.
Who’s hurt/helped by inflation? 5. Your savings from your job are in a savings account paying a fixed rate of interest. Hurt The money you have in the bank no longer beats inflation. As time goes on it loses value (buys less).
Time for a Trial!!!!! The Trial of Ms. Ann Flation
The Trial Witnesses for Prosecution Defense Mr. Con Glomerate: Business owner who charges an arm and a leg. Ms. Fix Ed Income: Old retiree who misses her Bingo. Prof. I Can’t Getahead: College econ professor looking for a raise. . Witnesses for Ms. Iona Lots: Real estate investor. I. O. Manny Bucks: Big spender who loves his credit cards. Ann Flation: The woman who started it all.
Who was helped/hurt T - Chart Who is Hurt By Inflation and Why? Mr. Con Glomerate- rising production costs make his products more expensive. Ms. Fix Ed Income- her income is losing money because prices are rising and her income is fixed. Prof. I Can’t Getahead- inflation is causing prices to rise faster than his income. Who is Helped by Inflation and Why? Ms. Iona Lots- her real estate investments are growing fast! Mr. I. O. “Manny Bucks”- he is paying his debt back with inflated dollars, therefore he is actually paying less.
- Slides: 18