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    Inflation & Stagflation

    Inflation Deflation Definitions Occurs when prices steadily decrease A sustained increase in prices Goods and services get more expensive Reduces purchasing power Causes money to lose value over time Occurs when prices steadily decrease Causes falling prices Usually accompanies falling demand and economic problems

    Inflation & Stagflation

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    Presentation on theme: "Inflation & Stagflation"— Presentation transcript:

    1 Inflation & Stagflation

    Edgenuity Lesson 4.4

    2 Inflation Deflation Definitions Occurs when prices steadily decrease

    A sustained increase in prices Goods and services get more expensive Reduces purchasing power Causes money to lose value over time Occurs when prices steadily decrease Causes falling prices Usually accompanies falling demand and economic problems

    4 Measuring Inflation Inflation rate = annual rate at which prices increase Inflation rate = ((final value – initial value)/initial value) X 100 Typical rate in the US is 2.5% per year When the rate of inflation declines, it is call disinflation (lower rate of inflation than the year before, different from deflation)

    5 Consumer Price Index (CPI)

    Most common measure of inflation Calculated by US Bureau of Labor Statistics Collects prices of goods in a market basket (commonly purchased items)

    6 Gasoline costs more to produce and purchase than tomatoes.

    Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States? Gasoline costs more to produce and purchase than tomatoes. Gasoline is imported from other nations at a higher rate than tomatoes. Americans purchase many more boxes of tomatoes than barrels of gasoline. Americans spend more money on gasoline than tomatoes, on average.

    7 Nominal vs. Real GDP GDP – Gross Domestic Product (economic indicator)

    Nominal measurements do not account for outside factors Real measurements account for inflation and price changes

    8 Nominal vs. Real GDP

    9 Causes of Demand-Pull Inflation

    Caused by increasing demand As demand increases, so do prices Occurs when economy is strong Step-by-step: Consumers are employed and have funds for new cars. Dealers raise prices to match demand. Demand increases for goods needed to make cars. Prices of these goods also increase. Causes inflation to spread across the economy.

    10 Effect of Demand-Pull Inflation

    Low inflation rates (2-3%) are a sign of a healthy economy Governments target a low, positive rate of inflation Results in an increase in production to keep up with demand (job growth)

    11 Cost-Push Inflation Step-by-step: Caused by increased production costs

    Rising gas prices increase transportation costs Companies spend more on transporting goods Consumers pay higher prices for many products Causes inflation to spread across the economy Caused by increased production costs Companies raise prices to pass on these costs to consumers Rising prices cause inflation over time

    12 HyperInflation Occurs when prices rise extremely quickly

    Money can become worthless Gov’t prints more money, resulting in even faster inflation

    13 Effects of High Inflation

    Increases uncertainty Real incomes fall Banks grant fewer loans Interest rates rise Affects both homes and businesses

    14 Inflationary Spiral Leads to More Inflation

    15 Occurs when an economy experiences: Individuals will:

    Stagflation Occurs when an economy experiences: High inflation Low level of production High unemployment Individuals will: Worry about losing their jobs This causes less spending Spending less money leads to an economic slowdown

    16 Stagflation Effects Reduces value of currency Decreases production and GDP Decreases trade with other economies

    17 Demand-pull inflation occurs when

    the price of goods rises suddenly and extremely fast. consumers begin purchasing more goods. producers need more money to make and distribute goods. the government prints more money and pushes prices up.

    18 Typically, low inflation is a sign of

    a healthy economy because it results from a steady rise in demand. a healthy economy because it results from a steady rise in supply. a struggling economy because it results from a steady fall in demand. a struggling economy because it results from a steady fall in supply.

    19 Typically, High inflation is a sign of

    a struggling economy because wages cannot keep up with the increase in prices. a healthy economy because it results from a fall in production costs. a healthy economy because it results from a rise in consumer interest. a struggling economy because it results from a fall in consumer interest.

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    answered • expert verified

    Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?

    A: Gasoline costs more to produce and purchase than tomatoes.

    B: Gasoline is imported from other nations at a higher rate than tomatoes.

    C: Americans purchase many more boxes of tomatoes than barrels of gasoline.

    D: Americans spend more money on gasoline than tomatoes, on average.

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    Expert-verified answer

    In the annual inflation rate, gasoline weighted more heavily than tomatoes since. D: Americans spend more money on gasoline than tomatoes, on average.

    What is annual inflation rate?

    The annual inflation rate can be regarded as the rate of increase in prices over a given period of a year.

    In United State, gasoline weighted more heavily than tomatoes in their annual inflation rate  since, more money is spent on gasoline.

    Learn more about annual inflation rate at;

    brainly.com/question/8149429

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    Answer

    Answer:D). Americans spend more money on gasoline than tomatoes, on average.Explanation:

    The key reason behind the gasoline weighing more in comparison to the tomatoes during the calculation of the yearly inflation rate is the people of the United States spending more money on gasoline than tomatoes. The increasing demand for gasoline in comparison to lesser supply causes the price hike and increase in the inflation rate. Thus, option D is the correct answer.

    1jaiz4 and 91 more users found this answer helpful

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    econ: inflation and stagflation Flashcards

    Study with Quizlet and memorize flashcards terms like Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?, What is one consequence of stagflation?, Typically, high inflation is a sign of and more.

    econ: inflation and stagflation

    Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?

    Click card to see definition 👆

    Americans spend more money on gasoline than tomatoes, on average.

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    What is one consequence of stagflation?

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    The economy drastically slows down as money loses its buying power.

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    Terms in this set (10)

    Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?

    Americans spend more money on gasoline than tomatoes, on average.

    What is one consequence of stagflation?

    The economy drastically slows down as money loses its buying power.

    Typically, high inflation is a sign of

    a struggling economy because wages cannot keep up with the increase in prices.

    Which is the best definition of inflation?

    a gradual increase in the price of goods and services

    Which federal agency calculates the Consumer Price Index (CPI)?

    US Bureau of Labor Statistics

    The equation calculates an annual rate in economics.

    What rate does the equation calculate?

    inflation rate

    Hyperinflation can occur when

    the government prints a ton of money in order to pay off its debt.

    Typically, low inflation is a sign of

    a healthy economy because it results from a steady rise in demand.

    Which scenario is an example of demand-pull inflation?

    Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result.

    What are the signs of high inflation? Check all that apply.

    Production begins to fall.

    Interest rates increase.

    Purchasing power falls.

    Fewer fixed rate bank loans.

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