1. Response Question Talk to the person next to you compare what you came up with for the following questions. What is inflation? What causes inflation? Does the US have an inflation problem today? How did you answers differ? How did you determine which answer was right? Write down the best answers on a single sheet.

2. Inflation

3. Inflation: an increase in the price level, or avg price of goods. Inflation effects Purchasing power, the ability to buy goods is decreased with rising prices. Inflation Rate is the percentage of change in price over time.

4. Three theories of why inflation happens Quantity Theory Too much money in the economony causes inflation to stop it increase the money supply at the same rate the economy grows. Cost Push Theory When Producers raise prices to meet increased costs. This can cause wage spiral. Wages increase lead to higher prices and thus higher wages. Demand Pull Theory inflation occurs when demand for a good exceeds supply

5. What does inflation affect? Purchasing Power high inflation would mean the dollar you have cannot buy as much. Interest Rates When inflation rate exceeds a banks interest rate you are actually losing money. Income If your income does not increase each year with the inflation rate each year you lose money.

6. To determine whether there is inflation the Consumer Price Index, or CPI is used. CPI: The price of an average basket of goods compared with the same basket one month or year earlier. A high increase in CPI indicates higher inflation.

7. In your response section answer the follow 4 questions 1. Inflation is (a) the process by which rising wages cause higher prices. (b) the price increase of a typical group of goods. (c) a general increase in prices. (d) the ability to purchase goods and services. 2. Too much money in the economy is the cause of inflation according to (a) the quantity theory. (b) the demand-pull theory. (c) the quantum theory. (d) the cost-push theory. 3. Explain how inflation effects us personally. 4. How is CPI determined?

8. How Coca Cola wen unaffected by inflation for 70 years.

9. So why wasn’t Coca Cola not affected by inflation when everything else around it was? Can you think of anything else that’s been the same price for a long time? Was Coca Cola finally affected by inflation? How/why?

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