1. Unemployment Practice
On Friday you were given an unemployment practice sheet (there were 2 sides)
You need to complete that practice and turn it in
I am going to give you 10 minutes to do so before we move on

2. Annual Inflation Rate- Time for Prices to Double-
Goal #3
LIMIT INFLATION
Country and Time-
Zimbabwe, 2008
Annual Inflation Rate-
79,600,000,000%
Time for Prices to Double-
24.7 hours
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ACDC Leadership 2015

3. What is Inflation?
Inflation is rising general level of prices and it reduces the “purchasing power” of money
Examples:
It takes $2 to buy what $1 bought in 1987
It takes $6 to buy what $1 bought in 1970
It takes $24 to buy what $1 bought in 1913
When inflation occurs, each dollar of income will buy fewer goods than before
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ACDC Leadership 2015

4. How is inflation measured?
The government tracks the prices of specific “market baskets” that include the same goods and services.
There are two ways to look at inflation over time:
The Inflation Rate- The percent change in prices from year to year
Price Indices- Index numbers assigned to each year that show how prices have changed relative to a specific base year.
Examples:
The U.S. inflation rate in 2014 was 0.8%.
The Consumer Price Index for 2014 was 235 (base year 1982). This means that prices have increased 135% since 1982.
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ACDC Leadership 2015

5. Consumer Price Index (CPI)
The most commonly used measurement of inflation for consumers is the Consumer Price Index (CPI)
Here is how it works:
The base year is given an index of 100
To compare, each year is given an index # as well =
Price of market
basket in base year
x 100
CPI
Price of market basket
Market Basket: Movie is $6 & Pizza is $14
Total = $20 (Index of Base Year = 100)
Market Basket: Movie is $8 & Pizza is $17
Total = $25 (Index of )
125
This means inflation increased 25% b/w ’97 & ‘09
Items that cost $100 in ’97 cost $125 in ‘09
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ACDC Leadership 2015

6. Consumer Price Index (CPI)
Calculate CPI using the following information
2000 is the Base year
Year Market Basket CPI
$50
$75
$85
$100
$120
$115
$135
100
150
170
200
240
230
270
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ACDC Leadership 2015

7. Who cares about CPI?
CPI can be used to calculate the inflation rate from one year to the next
Understanding how prices have changed from one year to the next, helps us have a better understanding of the health of our economy (we will see why in a few minutes)
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ACDC Leadership 2015

8. Practice
Complete just the first side of the handout, the side that says constructing a Price Index

9. Three Causes of Inflation
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10. Higher production costs increase prices
3 Causes of Inflation
The Government Prints TOO MUCH Money
You get too many dollars chasing too few goods
2. Demand- Pull Inflation
DEMAND PULLS UP PRICES!!!
3. Cost-Push Inflation
Higher production costs increase prices
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11. The Wage-Price Spiral A Perpetual Process: 1.Workers demand raises
2.Owners increase prices to pay for raises
3. High prices cause workers to demand higher raises
4. Owners increase prices to pay for higher raises

12. What is the main problem with using GDP as a measure of Economic Growth?
We are tracking how much we spend to show how much our production is increasing.
If prices change from year to year, how do we know if our economy is actually growing?
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13. Inflation and GDP To calculate Real GDP:
Nominal GDP- GDP that is expressed in the current year’s dollar value
Real GDP- GDP that has been adjusted for inflation to show the impact of changes in price level
To calculate Real GDP:
Real GDP= (Nominal GDP/Price Index) X 100
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14. But inflation doesn’t effect everyone equally.
Identify which people are helped and which are hurt by unanticipated inflation
A man who lent out $500 to his friend in 1960 and gets paid back in 2015.
A tenant who is charged $850 rent each year.
An elderly couple living off fixed retirement payments of $2000 a month
A man that borrowed $1,000 in 1995 and paid it back in 2014.
A women who saved $500 in 1950 by putting it under her mattress
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ACDC Leadership 2015

15. Effects of Unanticipated Inflation
Hurt by Inflation Helped by Inflation
Lenders-People who lend money (at fixed interest rates)
People with fixed incomes
Savers
Borrowers-People who borrow money
A business where the price of the product increases faster than the price of resources
Nominal Wage- Wage measured by dollars rather than purchasing power
Real Wage- Wage adjusted for inflation
If there is inflation, you must ask your boss for a raise
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ACDC Leadership 2015

16. Complete side 2 of the handout
Practice
Complete side 2 of the handout

17. The national economy goes up and down like a roller coaster over time
The Business Cycle
The national economy goes up and down like a roller coaster over time
Real GDP
Inflation
Unemployment
Peak
Real GDP
Trough
Full Employment
Recession
(Contraction)
Recovery
(Expansion)
Time
A recession is 6 month period of decline in Real GDP. (If really bad…then depression)
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ACDC Leadership 2015

18. Ticket out the door
In what ways does a high inflation rate hurt an economy?