Inflation


A sustained increase in the overall price level

Inflation can be calculated using several formula
s:

using CPI:

Inflation service years Y<-> Z=
(
CPI Z-1)
(CPI Y ) x 100


Using GDP Deflator

GDP Deflator=
[
Nominal GDP ]
[Real GDP] X 100

Inflation is bad because:
  • lowers purchasing power
  • harms households (even those whose income increases with inflation)
  • resources wasted adjusting prices (re-printing menus, brochures, etc)
  • borrowing and lending can hurt (lenders loan money but receive less back due to inflation)

Causes of Inflation

  • demand-pull theory- sectors of the economy try to buy more goods and services than the economy can produce. this causes shortages thus prices are pulled up by excessive demand
  • excessive government deficit spending
  • rising "input" costs (live labor) cause prices to go up and decreases the buying power of the dollar
  • unexpected rise in the cpst of non-labor input (gas jumps #30 a barrel)
  • the self-perpetual spiral- workers ask for higher wages. this causes the employer to raise prices to give the raise, now the workers need another raise to deal with the higher prices
  • excessive monetary growth (can't have inflation without more currency entering the system)
    Inflation is an overall increase in the price level.
    Inflation is an overall increase in the price level.

Q & A's:


  • Explain how inflation causes a misallocation of resources: instead of improving the product, it leads to wasting money to reconstruct things
  • How does inflation discourage savings? After awhile, the money will have less value and people want to use that money in the present rather than saving it when the value is worth less
  • How does inflation redistribute wealth from lenders to borrowers? For example, if the lender lends you $10 after 2 years the money's value goes down so when the borrower gives back the money it will be worth $8

SS.D.2.4. The student examines the relationship between the money supply and inflation.



Unemployment


Frictional Unemployment
  • People who find themselves unemployed sometimes look in the newspaper for job openings.
    People who find themselves unemployed sometimes look in the newspaper for job openings.
    new workers looking for jobs and people between jobs

Structural Unemployment
  • as technologies become obsolete, the individuals using that technology become unemployed. Their skills are outdated.

Cyclical Unemployment
  • results from downturns in the business cycle (recessions and depressions)

Seasonal Unemployment
  • results from changes in hiring patterns due to the time of year.

SS.D.2.4. The student is able to identify types of unemployment.
SS.D.1.4. The student examines how technology has impacted the labor force.

Creeping Inflation


Circumstance where the inflation of a nation increases gradually, but continually, over time. This tends to be a typically pattern for many nations. Although the increase is relatively small in the short-term, as it continues over time the effect will become greater and greater.

citation: http://www.businessdictionary.com/definition/creeping-inflation.html


Summary:

Inflation increases slowly and consistently.


Galloping Inflation




Inflation is a situation where there is a sustained and persistent rise in the general price level, usually over one year.

Galloping Inflation is known from its difference in rate.You will notice that the inflation rate is increasing at a noticeable and incredible rate.

Its characteristics are:


1. Developing or progressing at an accelerated rate

3. Galloping like a horse.

NOTE: The difference between Galloping and Hyper Inflation is that Galloping is much faster than Hyper.

A hyper inflation is usually abpve the rate of 19.5%.

Inflation may be above 20% but it is constant. However, with galloping inflation, it is above 20% but it is increasing gradually form 20 to 20.1,.2,.3,.4,.5.,5,e.t.c

BOTH ARE ALARMING TO THE ECONOMY but a galloping Infaltion is more alarming.
MES2041.jpg
The prices raise more than 10 percent a year, running inflation occurs.


Summary:

A change in the rate of inflation.










Hyperinflation


1dollar.jpg
At a monthly rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of the following year.

Inflation is a situation where there is a sustained and persistent rise in the general price level, usually over one year.

Galloping Inflation is known from its difference in rate.You will notice that the inflation rate is increasing at a noticeable and incredible rate.

Its characteristics are:


1. Developing or progressing at an accelerated rate

3. Galloping like a horse.

NOTE: The difference between Galloping and Hyper Inflation is that Galloping is much faster than Hyper.

A hyper inflation is usually above the rate of 19.5%.

Inflation may be above 20% but it is constant. However, with galloping inflation, it is above 20% but it is increasing gradually form 20 to 20.1,.2,.3,.4,.5.,5,e.t.c

BOTH ARE ALARMING TO THE ECONOMY but a galloping Inflation is more alarming.

Summary:

A slower change in the rate of inflation.