Name__________________ Date due__________date turned in___________
Posted on internet thursday 05_03
Chapter 13: Section 2: Inflation
Date Due: 05_04 Friday Pgs. 338 to 344
aphs Fig.13.1; 13.2; 13.3; 13.4; 13.5; 13.6.; 13.7 13.8. Global
nnection: pg.335 Skills for Life: page: 337 Fast Fact pg.305 and 323
ofile Oprah Winfrey pg.344; Case study pg.325:
Economic
Objectives: After studying this section you will be able to:
A. Explain the effects of rising prices.
B. Understand the use of price indexes to compare changes in prices over
time.
C. Identify the causes and effects of inflation.
D. Describe recent trends in the inflation rate.
Main Idea: Economists use indexes to keep track of rising prices and to
calculate inflation rate. The level of inflation in the economy can affect
wages, purchasing power, and other aspects of everyday life.
The Effects of Rising Prices
1. A general increase in prices is called___________. The ability to
purchase goods and services is called________ power. As______- rise
the__________ power of money________.
Price Indexes
2. The cost of goods and services in the entire economy at a given point
in time is called________ level. A measurement that shows how the average
price of a spandrel group of goods changes over time is called a________
index. A______- index produces an________ that economists compared to
earlier_______ to see how much prices have changed over time.
3. The________ Price Index (CPI) is computed each month by BLS. A
representative collection of goods and services is called a_____basket.
Study figure 13.4 and you can see the CPI’s market basket items.
Every____years the market basket items are revised by surveying________
families for their________ habits. The percentage rate of change in price
level over time is called the________ rate.
4. Currently the base time frame for the CPI is 1982 through 19__. The
cost of that market basket of goods is assigned index number of _______.
For example if in 1984 the market basket item of goods cost $200 and the
same market items of goods today cost $360, divide 360 x 200x100 equals
180 in this example the CPI rose from 100 to 180. Now we can use these
numbers to calculate the inflation rate.
5. The CPI for 1979 was 72.6 and for 1980 the CPI was 82.4. Subtract 72.6
from 82.4= 9.8 divide by 182.4 that answer times 100 will equal the
inflation rate for 1980.________
6. Study figure 13.6 inflation rate between 1966 and the year 2002. In
1974 and 1980 the inflation rate spiked up sharply due to what two
markets______ and________. The rate of inflation excluding the effects of
food and energy prices is called________ inflation rate. The worst kind of
inflation is__________ this is inflation that is out of________.
Hyperinflation often leads to total economic___________.
Causes of Inflation
7. There are______ theories that attempt to explain the causes of
inflation a) the________ theory of inflation states that too much_______
in the economy causes inflation. The key to stable_____was to increase
the______ of money at the same rate as the_____was growing b) the_______
pull theory of inflation states that inflation occurs when demand for
goods and services exceeds existing supplies. Heavy demand for goods and
services will force prices up wages will also go up as the demand for
labor also rises c) the_______ push theory of inflation occurs when
producers raise prices in order to meet increased costs. Wage increases
can be a leading cause of the cost pull theory of inflation. The process
by which rising wages cause higher price, and higher prices cause higher
wages is known as the wage price____.
Effects of Inflation
8. The effects of inflation can be seen mainly in___areas a) ______ power,
if inflation rate is 10% this year one dollar will only by you $.90 with
the goods at the end of the year b) income that does not increase even
when prices go up is called___income, retirees are an example of this c)
if you have your money in a savings account in the inflation rate is
higher than the_______ being earned you could actually lose all your
money.
Recent Trends
9. Typically low unemployment leads to_________ inflation. Companies
compete for scarce workers by offering higher____. A sustained drop in the
price level is called________.