Download presentation
Presentation is loading. Please wait.
Published byMadlyn Sims Modified over 8 years ago
1
1 Inflation ©2006 South-Western College Publishing
2
2 What is inflation? An increase in the general (average) price level of goods and services in the economy
3
3 What is the most widely reported measure of inflation? The Consumer Price Index
4
4 What is the Consumer Price Index? The CPI is an index that measures changes in the average prices of consumer goods and services
5
5 Who reports the CPI? The Bureau of Labor Statistics (BLS) of the Department of Labor
6
6 How is the CPI calculated? Price collectors contact retail stores, homeowners, and tenants in selected cities in the U.S. monthly
7
7 Which goods and services are included in the CPI? The BLS records average prices for a “market basket” of different items purchased by the typical urban family
8
8 Composition of the CPI Food Housing Apparel Transportation Medical Care Entertainment Education & communication All other goods 15.7% 40.9% 4.4% 17.1% 5.8% 6.0% 5.8% 4.3% Economic Report of the President, 2005
9
9 Does the makeup of the CPI change? As people’s tastes and preferences change, some of the goods and services that go into the basket change
10
10 How is the CPI computed? Current year prices are compared to prices of a similar basket of goods and services in a base year
11
11 What is a base year? A year chosen as a reference point for comparison with some earlier or later year
12
12 Why is the CPI always 100 in the base year? The numerator and the denominator of the CPI formula are the same in the base year
13
13 How is the inflation rate computed? The annual inflation rate is computed as the percentage change in the official CPI from one year to the next
14
14 3040506070809000 The U.S. Inflation Rate 1929 - 2004 05 16 8 4 0 -4 12 -8 -12
15
The Most Popular Movies of All Time, Inflation Adjusted
16
16 What is disinflation? A reduction in the rate of inflation
17
17 What are some criticisms of the CPI? It can overstate or understate the impact of inflation for certain groups Does not measure quality Substitutes are ignored
18
18 What does inflation do to people’s income? A general rise in prices will shrink people’s income
19
19 What is nominal income? The actual number of dollars received over a period of time
20
20 What is real income? The actual number of dollars received (nominal income) adjusted for changes in the CPI
21
21 What will cause your real income to decline? The rate of inflation is greater than your rate of income
22
22 How does inflation affect borrowers and savers? They can win or lose depending on the rate of inflation and interest
23
23 What is the interest rate? Interest per year as a percentage of the amount loaned or lent
24
24 What is the nominal interest rate? The actual rate of interest earned over a period of time
25
25 What is the real interest rate? The nominal rate of interest minus the inflation rate
26
26 What is hyperinflation? An extremely rapid rise in the general price level
Similar presentations
© 2024 SlidePlayer.com Inc.
All rights reserved.