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Inflation
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2. Quiz Results

3. Quiz Results

4. DEFINITIONS
INFLATION - A LOSS IN THE PURCHASING POWER OF MONEY OVER TIME
DEFLATION - PRICES DECREASE OVER TIME
CONSUMER PRICE INDEX (CPI) - COST OF A COMPOSITE OF GOODS COMPARED TO AN EARLIER TIME
BASE PERIOD - TIME TO WHICH WE ARE COMPARING PRICES
PRODUCER PRICE INDEX - PRICE INDEX FOR VARIOUS INDUSTRIAL PRODUCTS
COST OF LIVING INDEX - INCLUDES CHANGES IN BUYING HABITS

5. CALCULATING AVERAGE INFLATION RATES
FROM SUCCESIVE INDECES:
FROM TWO POINTS IN TIME (single payment compound amount factor)

6. EXAMPLE
THE PASSENGER CAR INDEX WAS 113 IN IT HAD RISEN TO IN THE AVERAGE INFLATION RATE WAS (A SPECIFIC INFLATION RATE):
fj = (133.9/113)1/6 -1 = 2.9 %
WE CAN COMPARE THIS WITH THE CHANGE IN THE CPI OVER THE SAME PERIOD (THE GENERAL INFLATION RATE):
= f (CPI) = (148.2/118.3)1/6 -1 = 3.8%
WHAT DOES THIS SAY ABOUT THE RELATIVE COST OF CARS DURING THAT PERIOD?
CURRENT CPI =

7. Recent Inflation Rates CPI

8. ACTUAL AND CONSTANT DOLLARS
CONSTANT DOLLARS = CONSTANT PURCHASING POWER INDEPENDENT OF THE PASSAGE OF TIME (A’n)
ACTUAL OR CURRENT DOLLARS (REAL) - ESTIMATES OF FUTURE CASH FLOWS TAKING INTO ACCOUNT INFLATIONARY EFFECTS (An )
EXAMPLES 11.3 AND 11.4

13. INTEREST RATE DEFINITIONS
MARKET INTEREST RATE(i) (INFLATION ADJUSTED MARR) - TAKES INTO ACCOUNT EARNING POWER AND INFLATION EFFECT (USED MOST FREQUENTLY)
INFLATION FREE INTEREST RATE(i’) (REAL INTEREST RATE)- TRUE EARNING POWER OF MONEY
EVERYTHING WE HAVE DONE SO FAR THIS SEMESTER USED MARKET INTEREST RATES

14. RECENT INFLATION RATES

15. YEARS OF HIGH INFLATION

16. SOME HISTORICAL (AND HISTORIC) EXAMPLES
GERMANY 1923 (2/23 T0 12/23)
HUNGARY 1945
NYT story from 1945:
INFLATION IN HUNGARY; National Bank Pays at Rate of 8,250 Pengos to Dollar
HUNGARY TO SLASH LIVING STANDARDS; Drastic Cuts Ordered ...
Inflation-crazed Hungary, rocking under the impact of the maddest of all currency debacles, in which one United States cent is worth trillions of pengoes, is going ...

17. SOME HISTORICAL (AND HISTORIC) EXAMPLES
Inflation Becomes Nightmare in Hungary With Value of Pengo ...
BUDAPEST, Hungary, April 4 (Delayed, London Times dispatch) --In Budapest inflation has now become a nightmare, with nothing ... like it except the German ...
April 6, By Wireless to THE NEW YORK TIMES. - Business & Finance - Article - Article - Article - Article - Print Headline: "Inflation Becomes Nightmare in Hungary With Value of Pengo Dropping Steadily
USA 1970’S
Zimbabwe, a few years ago
Veneszela now

18. POSTAGE STAMPS OF

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21. POSTAGE STAMPS OF