INFLATION
A TWO-WEEK UNIT OF STUDY
Albert Goldsmith
GENERAL OBJECTIVES
By studying this unit, a student should do some or all of the following'
define inflation recognize some of the causes of inflation recognize
examples of inflation recognize the impact of inflation on individuals
and society examine solutions to an unacceptable level of inflation
use the Consumer Price Index to determine the average increase or decrease in
prices over a period of time make wise personal decisions make supportable
generalizations about inflation.
INFLATION
Inflation is a condition whereby the value of money is decreasing. It occurs when
spending increases more rapidly than the amount of goods and services available
for purchase. This inflation is often referred to a 'demand-pull" and must be
distinguished from "cost push" inflation which occurs when price increases are
caused by an increase in production costs. These increases in production costs can
usually be traced to higher wage demands, unusually high profits, or increases in
the cost of raw materials or capital.
Pre-Test
Examine the following statements and indicate whether each is a statement of fact
or a statement of opinion about inflation. Place an F beside statements of fact
and an O beside statements of opinion.
1. A definition of inflation can be written and learned.
2. Effective control of inflation requires a cooperative relationship between the
government
and the
people.
3. Inflation does affect me.
4. The most important job of the government is to control and support our money system. 5.
Inflation is the price we pay for full employment in this country. 6. There are ways of
combating inflation. 7. There have been more inflationary then non-inflationary years in
this country since the end of World War II.
8. A completely free enterprise system to determine price is the best way to prevent
inflation.
9. The rate of inflation can be measured.
10. The government has no right to control wages.
Now read the statements again and indicate those statements, which you think to be true
and t1e you think to be untrue.
Introduction
Using current newspapers ads, show how prices have increased.
Questions for discussion:
1. What is inflation?
2. How much do prices have to increase before it become a serious inflationary problem?
3. How does inflation affect you?
Assign as student reading some introduction material on inflation such as the
booklet "Inflation" produced by the federal price commission.
Who Gets Hurt By Inflation?
Questions for discussion:
1. During an inflationary period it may be possible for some people to profit in
the short run, but lose in the long run. Briefly explain how this is possible.
2. List some ways that inflation might affect people with:
a. large savings accounts
b. small savings accounts
e. life insurance
d. retirement income
e. stocks
f. bonds
3. What is meant by the statement, "Inflation is the unfairest tax of all"?
4. Having considered what types of people are helped or hurt by inflation, how would
you classify yourself and why?
5. Does anyone benefit from inflation?
a. Those repaying loans?
b. The federal government?
Assign as student reading some material on "Who Gets Hurt?" such as the material
in "Inflation."
Filmstrip-"Inflation
Activities And Further Research
1. Students could investigate how the period of inflation in Germany in the early
20's came to an end.
2. Students might investigate what has happened to inflation in other countries since
1969. (Brazil, Germany, Argentina, etc.)
3. Students might investigate periods of inflation in American history, Especially
interesting might be Shay's Rebellion and Confederate money.
4. Oral History Project: Use a tape recorder to record information collected through
interviews of a variety of groups in the community such as senior citizens,
housewives, bankers, etc. Students could pose such questions as:
a. Prices are higher today, but so is our standard of living, so why worry about
inflation?
b. What was it like in the 'good old days'?
c. How has inflation affected you?
What Causes Inflation?
Assign student readings on the causes of inflation.
Questions to answer:
1. What/t is cost push inflation
2. What is demand-pull inflation?
3. Are labor unions the cause of inflation
4. Are business the cause of inflation?
5. Does the government contribute to inflation?
6. What is meant by "the psychology of inflation"?
Activities
a. Ask the students to draw a cartoon or a diagram showing the meaning and function
of cost-push and demand-pull inflation.
2. Ask the students to draw a cartoon or diagram explaining the meaning of fiscal
and monetary policy and its effects on inflation.
3. Ask the students to put on a skit or a pantomime dramatizing the basic concepts
of inflation.
How are price changes measured?
Assign student readings on measuring price changes such as pages 79-83 of the text
"The American Economy".
Questions to answer:
1. That is the purpose of a price index? How is it computed?
2. What are weighted index numbers? Why are they usually used in representing price
changes?
3. What is the "Consumer Price Index?" How does the government use it? Unions?
Businesses?
Lecture: "The New Price Index"
Activities
These activities may be used individually or as a whole. The use of the whole group
of activities creates a major class project.
1. Have students make up a "market basket" of goods that reflects the buying patterns
of the class. Try to "weight" the items. (How much of a consumer dollar would
the students spend on one item in relation to another.) This provides an excellent
opportunity for a discussion of consumer patterns, buying habits, and the psychology of
spending. 2. When the 'market basket" is completed, have the students go into the
community and
price the items at a number of different stores. This may be done one time to find
out where the best buys are or on a monthly basis throughout the year to track
changes in prices. Have the students chart this data. Let the students design the
chart to show the data.
What The Government Can Do. Assign student reading on the governments attempts to
stabilize the economy such as the appropriate pages in 'Disinflation' or 'The
American Economy" pages 373-389. Additional reading for the better students can be
taken from "Controlling the business cycle: the Government's Role" published by
Newsweek, Inc. Those ditto masters include:
Inflation and/or Unemployment? Controlling Business
Fluctuations: Government Fiscal Policies Coping with
Stagflation Congress Proposes Its Own Recovery Plan Tax Cuts:
How Much is Enough? Tight Money: The Shoe Begins to Pinch What
is the Federal Reserve Doing? A Battle of The Theories
Managing Inflation in a Full Employment Society.
Does Keynesian Theory Work in Practice?
Questions:
1. List specific actions the government could take to help control "demand-pull
inflation.
2. Explain how each of the actions listed in #1 would have the effect of reducing
demand.
3.
What agencies of the Federal Government are able to act to control inflation?
4.
List ways in which the Federal Reserve Board can act to control inflation?
5.
Which of the methods listed in answer to M would have the greatest impact on you?
6. Describe what is meant by an "incomes policy" and indicate how this differs from
actions taken by the Federal Reserve Board.
7. What types of "incomes policy" would have a direct effect on individuals? What types
would have an indirect effect?
Activities
1.
Collect and classify newspaper headlines, articles, and advertisements which
illustrate each of the following. Share your collection with classmates.
a. Government's concern over inflation
b. Government actions to control inflation
c. The amount of money people has to spend.
d. Efforts to encourage people to spend e.
Efforts to encourage people not to spend f.
How large a supply of goods is available g.
How eager people are to buy things h. How
much government spends I. Your understanding
of inflation.
2.
One of the contributors to inflation is local, state and federal government spending
more money than they take in taxes. There are two solutions to this situation: a.
the government can reduce spending, or b. the government can increase taxes. List
some arguments that one could make for and against each of these alternatives. Which
alternative would you favor if you had to choose.
3.
What factors make it very difficult to reduce government spending?
Invite guest speakers representing labor, business, consumer groups, and the
government to form a guest panel to be interviewed by class members in a
Meet the Press' type interview.
Culminating activity
1. Create a culminating role-playing activity. The situation is that the President has
created an advisory board to suggest guidelines or government action needed to curb
today's inflationary trends. Groups of students assume and research each of the
following roles"
a. President of a large manufacturing company, which depends on defense contracts
b. Professor of economics at a liberal eastern university.
c. Member of the U.S. House of Representatives from Ohio
d. Housewife
e. Representative from the Urban League
f. A wheat farmer
h. Store owner who believes strongly in free enterprise.
i Executive of a labor union
j. Member of a labor union. After the students have reached the point of view of each
member of the committee, they should present the position of each member. A list of
possible suggestions for the President should be put before the committee. Each
should be discussed. The committee should attempt to reach a consensus as to what
plan of action to recommend to the President. Ask the students to compose a letter
stating their view on inflation and send copies to their representative in the U.S.
House and Senate.
Post Test
Examine the following statements:
1. Indicate beside statements of fact those that you believe to be true. Write
a sentence to indicate why the statement is true.
2. Beside each statement of opinion, indicate who might voice such an opinion and list
a value that you would associate with such a person. Indicate whether you believe
the statement to be true or false and why.
a. A definition of inflation can be written and learned.
b. Effective control of inflation requires a cooperative relationship between the
government and the people
e. Inflation does affect me.
d. The most important job of the government is to control and support our money system.
e. Inflation is the price we pay for full employment in this country.
f. There are ways of combating inflation
g. There have been more inflationary than non-inflationary years in this country since
the end of World War II
h. A completely free enterprise system to deterinineprice is the best way to prevent
inflation
i. The rate of inflation can be measured.
j. The government has no right to control wages.
Compare your responses on the post-test with your responses on the pre-test.
BIBLIOGRAPHY
ECONOMICS TEXT BOOKS
Ammer, Dean S. "Readings and Cases in Economics," Ginn & Company, Boston, 1966 pp.
70-74
Clemence, Doody, & Wronski, "Modern Economics," Allyn & Bacon, Inc., Boston, pp.
237-243.
Driscoll & Lundholm, "Our American Economy", Harcourt, Brace & World, Inc.,
Chapter 14.
Feier, "Economics for Modern Living," College Entrance Book Co., New York pp
153-158.
Harris, Lowell C., "Economics-An Analytical Approach," Ginn & Company, Boston pp.
399-409
Krider, Mortenson, & Sampson, "Understanding our Economy," Houghton Middlin, pp
120-127
Marienhoff, Mortenson, & Sampson, "The American Economy," Houghton Middlin Co.,
Boston, pp. 354-359
Smith, "Economics for our Times," Webster Division, McGraw Hill Book Co., St.
Louis, pp. 274-283.
BOOKS OTHER THAN TI XTS
Fowler, Gilbert, & Okun, "Inflation: The Problems it Creates and Policies it
Requires," New Youk University Press, New Youk, pp. 3-40.
Hazlitt, Henry, "What you Should Know About Inflation," D. Van Nostrand Co.,
Princeton, N.J.
"Inflation Simplified," Books by U.S. News and World Report, Washington, D.C.
Lincoln Filene Center for Citizenship and Public Affairs, "How Our Economic
System Works."
Wilson, Thomas, "Inflation,' Harvard University Press, Cambridge, Mass.
MAGAZINE ARTICLES
Anti-inflation gospel, A. J. Mayer and others. Newsweek, April 25, 1977
"Burns on the Outside," N. Friedman, Newsweek, January 9, 1978
"Can Reward and Punishment Cure Inflation?" Business Week, April 12, 1976
"Debate" How to Stop Inflation," A. Greenspan, Gourtune, April, 1977.
"Drive to Keep Prices From Saoring Higher," U.S. News, April 25, 1977.
"How 80 Years of Inflation Have Shrunk Your Dollar," U.S. News, July 4, 1977
"How Inflation Swindles the Equity Investor," W. E. Buffett, Fortune, May, 1977
"Inflation Is Now Too Serious a Matter To Leave TO The Economist," D. Warsh and L. Minard, Forbes,
November 15, 1976.
"Is Inflation Inevitable?" L. Nartz, Newsweek, May, 17, 1976.
"Is Inflation Really Coming Under Control?" U.S. News, October 17, 1977.
"It Takes Long-range Planning To Lick Inflation," A. Meltzer, Fortune, December, 1977
"Now Its Government Itself Pushing Prices Higher and Higher," U.S. News, December 19, 1977
"New Case OF Inflationary Jitters," Business Week, April 25, 1977.
"New Economic Weapon: Government Prescribed Wage Restraints To Squeeze Worldwide Inflation,"
Business Week, July, 26, 1976.
"Ray of Light In Inflation Battle," P. Gould, U.S. News, September 27, 1976.
"We've Learned To Lick Inflation," S. Rose, Fortune, September, 1976.
"Scrambling For An Inflation Policy. E. Lewis, Business Week, December 26, 1977.
'Stagflation," J. J. Ulmer, New Republic, October 29, 1977.