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    Ch. 9 Inflation

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    Piyush Palande
    This document summarizes key concepts about inflation. It defines inflation as a general rise in average price levels. The Consumer Price Index (CPI) measures price changes of goods and services in a basket. Not all price increases are inflationary, as some rise due to supply and demand. Prices play important roles conveying information and incentives. Inflation lessens disposable income arbitrarily. CPI baskets change as tastes change. Higher inflation means prices double faster. Central banks influence money supply, which must rise less than goods to avoid inflation. Inflation hurts those on fixed incomes most. Fiscal policies like spending cuts and tax hikes can reduce demand-pull inflation.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd

    Ch. 9 Inflation

    Uploaded by

    Piyush Palande
    83 views29 pages
    This document summarizes key concepts about inflation. It defines inflation as a general rise in average price levels. The Consumer Price Index (CPI) measures price changes of goods and services in a basket. Not all price increases are inflationary, as some rise due to supply and demand. Prices play important roles conveying information and incentives. Inflation lessens disposable income arbitrarily. CPI baskets change as tastes change. Higher inflation means prices double faster. Central banks influence money supply, which must rise less than goods to avoid inflation. Inflation hurts those on fixed incomes most. Fiscal policies like spending cuts and tax hikes can reduce demand-pull inflation.

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    This document summarizes key concepts about inflation. It defines inflation as a general rise in average price levels. The Consumer Price Index (CPI) measures price changes of goods and services in a basket. Not all price increases are inflationary, as some rise due to supply and demand. Prices play important roles conveying information and incentives. Inflation lessens disposable income arbitrarily. CPI baskets change as tastes change. Higher inflation means prices double faster. Central banks influence money supply, which must rise less than goods to avoid inflation. Inflation hurts those on fixed incomes most. Fiscal policies like spending cuts and tax hikes can reduce demand-pull inflation.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    83 views29 pages

    Ch. 9 Inflation

    Uploaded by

    Piyush Palande
    This document summarizes key concepts about inflation. It defines inflation as a general rise in average price levels. The Consumer Price Index (CPI) measures price changes of goods and services in a basket. Not all price increases are inflationary, as some rise due to supply and demand. Prices play important roles conveying information and incentives. Inflation lessens disposable income arbitrarily. CPI baskets change as tastes change. Higher inflation means prices double faster. Central banks influence money supply, which must rise less than goods to avoid inflation. Inflation hurts those on fixed incomes most. Fiscal policies like spending cuts and tax hikes can reduce demand-pull inflation.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 29

    Chapter 9

    Inflation
    These slides supplement the
    textbook, but should not
    replace reading the textbook
    What is inflation?
    A pervasive and
    general rise in the
    average price level

    2
    What is the
    Consumer Price Index?
    The CPI measures the
    price increases of a
    particular basket of
    goods and services
    3
    What is the price
    mechanism?
    The adjustment of prices
    in response to changing
    market conditions

    4
    Is any increase in
    prices inflationary?
    No, some prices will
    always increase
    because of the price
    mechanism
    5
    What three roles do
    prices play?
     convey information
     give incentives
     provide working capital

    6
    Why is inflation called
    an arbitrary tax?
    Because it lessens
    people’s disposable
    income while effecting
    them randomly
    7
    What is the consumer
    price index (CPI)?
    A measure of the cost
    of a fixed “market
    basket” of consumer
    goods and services
    8
    Does this “fixed
    basket” change?
    As people’s tastes and
    preferences change,
    what goes into the
    basket will change
    9
    If inflation is 10% and you
    get a 7% raise, what has
    happened to your money
    income? real income?
    Your money income
    has increased by 7%
    but your real income
    has decreased by 3%
    10
    At 2% how long will it take
    for prices double?
    36 years
    At 10% how long will it take
    for prices to double?
    7.2 years
    11
    What gives
    anything value?
    Usefulness and
    level of scarcity

    12
    How does inflation
    change society?
    It breeds uncertainty,
    diminishes buying power,
    erodes real savings, causes
    unemployment, alters social
    traditions, and confuses the
    price mechanism
    13
    What causes inflation?
    The money supply has to
    increase more than
    goods and services
    increase

    14
    Who influences our
    money supply?
    RBI(Central bank)

    15
    Surplus
    S

    Shortage D

    16
    Can businesses or
    consumers cause
    inflation?
    Maybe for a short time,
    but very quickly prices
    will come down due to
    a lack of buying power
    17
    Who is hurt the most
    by inflation?
    Anyone on a fixed
    income is hurt the most
    by inflation

    18
    What is
    demand-pull inflation?
    A sustained rise in the
    price level caused by
    increases in
    aggregate demand

    19
    Is it easy to fight
    demand pull inflation?
    Yes! When we lower
    demand prices will
    soon drop

    20
    What is
    supply side inflation?
    Inflation caused by
    reductions in
    aggregate supply

    21
    What is
    cost-push inflation?
    An increase in costs
    leading to an increase
    in prices

    22
    What is
    creeping inflation?
    The slow but steady
    increase in prices

    23
    What is hyperinflation?
    A very high rate of inflation

    24
    What is deflation?
    A sustained decrease
    in the price level

    25
    What is disinflation?
    A reduction in the
    rate of inflation

    26
    What is
    interest rate?
    Interest per year as a
    percentage of the
    amount loaned or lent

    27
    What fiscal policies
    would we use to bring
    down inflation?
    Cut government spending
    Raise taxes to pay debt
    Relax trade restrictions
    Increase productivity 28
    END

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