1. DO NOW
Provide an example for each type
of unemployment we learned
about yesterday. (structural,
cyclical, frictional, and seasonal)
2. AGENDA
1. DO NOW
2. Review
3. Inflation Notes
4. Frontline: 10 Trillion and Counting
3. COMPETENCIES/OBJE
CTIVES
SWBAT describe the types of
inflation, and identify two sources
of inflation.
SWBAT Identify the problems
that unexpected inflation creates.
4. Inflation
Inflation- an increase in the economy’s price level.
Inflation reduces the value of money
Measured on an annual basis
Inflation rate- percentage increase in the price level from
one year to the next.
5. Types of Inflation
Hyperinflation- extremely
high inflation.
Disinflation- a reduction in
the rate of inflation
Deflation- a decrease in
price level.
6. Two Sources of Inflation
Inflation is an increase in the economy’s price level
resulting from an increase in aggregate demand or a
decrease in aggregate supply.
Demand-pull inflation- inflation resulting from a
rightward shift of the aggregate demand curve; greater
demand pulls up the price level.
Cost- push inflation- inflation resulting from a leftward
shift of the aggregate supply curve; reduced supply
pushes up the price level.
7. Impact of Inflation
Since 1946 the the CPI (Consumer Price Index) has
increased elevenfold.
It now takes $11.80 dollars to purchase what $1
purchased in 1946.
On average the CPI has increased 3.8% per year.
8. Think
If your boss offers you a raise that will make your salary
about 4% more than it was before however inflation
unexpectedly goes up by 5% will you be making more or
less money than you did before?
9. Inflation and Interest
Rates
Real interest rate= nominal interest rate- inflation rate
Nominal interest rate- the interest rate expressed in current
dollars as a percentage of the amount loaned; the interest rate
on the loan agreement.
Real interest rate- the interest rate expressed in dollars of
constant purchasing power as a percentage of the amount
loaned; the nominal interest rate minus the inflation rate.
Lenders must predict how much inflation will impact the
amount of money they will receive in terms of purchasing
power.