INFLATION Topic 2.5 FIGURE 8.1 Big Bucks in Zimbabwe This bill was worth 100 billion Zimbabwean dollars when issued in 2008. There were even bills issued with a face value of 100 trillion Zimbabwean dollars. The bills had $100,000,000,000,000 written on them. Unfortunately, they were almost worthless. At one point, 621,984,228 Zimbabwean dollars were equal to one U.S. dollar. Eventually, the country abandoned its own currency and allowed foreign currency to be used for purchases. (modification of work by Samantha Marx/Flickr Creative Commons) FIGURE 8.2 The Weighting of Consumer Price Index (CPI) Components Of the eight categories used to generate the CPI, housing is the highest at 41 percent. The next highest category, transportation at 16.8 percent, is less than half the size of housing. Other goods and services, and apparel, are the lowest at 3.4 percent and 3.6 percent, respectively (Bureau of Labor Statistics, n.d.). FIGURE 8.3 U.S. Price Level and Inflation Rates since 1913 Graph (a) shows the trends in the U.S. price level from the year 1916 to 2014. In 1916, the graph starts out close to $10, rises to around $20 in 1920, stays around $16 or $17 until 1931, when it jumps to around $15. It gradually increases, with periodic dips, until 2014, when it is around $236. Graph (b) shows the trends in U.S. inflation rates from the year 1916 to 2014. In 1916, the graph starts out at 7.7 percent, jumps to close to 18 percent in 1917, drops drastically to close to –11 percent in 1921, goes up and down periodically, until settling to around 1.5 percent in 2014. FIGURE 8.4 Countries With Relatively Low Inflation Rates, 1960–2014 This chart shows the annual percentage change in consumer prices compared with the previous year’s consumer prices in the United States, the United Kingdom, Japan, and Germany. FIGURE 8.5 Countries with Relatively High Inflation Rates, 1980–2013 These charts show the percentage change in consumer prices compared with the previous year’s consumer prices in Brazil, China, and Russia. (a) Of these, Brazil and Russia experienced hyperinflation at some point between the mid-1980s and mid1990s. (b) Though not as high, China also had high inflation rates in the mid-1990s. Even though their inflation rates have come down over the last two decades, several of these countries continue to see significant inflation rates. Sources: (Federal Reserve Bank of St. Louis, 2013a; Federal Reserve Bank of St. Louis, 2013b; Federal Reserve Bank of St. Louis, 2013c). FIGURE 8.6 U.S. Minimum Wage and Inflation After adjusting for inflation, the federal minimum wage dropped more than 30 percent from 1967 to 2010, even though the nominal figure climbed from $1.40 to $7.25 per hour. Increases in the minimum wage in between 2008 and 2010 kept the decline from being worse, as it would have been if the wage had remained the same as it did from 1997 through 2007. (Sources: U.S. Department of Labor, n.d.; Bureau of Labor Statistics, n.d.b) FIGURE 8.7 U.S. Inflation Rate and U.S. Labor Productivity, 1961–2014 Over the last several decades in the United States, there have been times when rising inflation rates have been closely followed by lower productivity rates and lower inflation rates have corresponded to increasing productivity rates. As the graph shows, however, this correlation does not always exist. Instructional Support Ancillaries for TEA AP® Macroeconomics The following materials are available to support instruction of TEA AP® Macroeconomics: ● TEA AP® Macroeconomics PowerPoint Slides ● TEA AP® Macroeconomics Instructor’s Solution Manual ● TEA AP® Macroeconomics Alignment Map If you are an instructor and want to obtain these ancillaries, please use your official school email to send a request to the TEA using the following email address: open-sourceinstructionalmaterials@tea.texas.gov Please include information about the title for which you need ancillary materials.