- Identify some confusion about inflation (within or outside the text) that you have seen come up.
- Explain the source of that confusion and the misconceptions that come about from it.
150 words or more
Notes attached pptx
PRINCIPLES OF MACROECONOMICS 2e
Chapter 9 Inflation
PowerPoint Image Slideshow
Chapter # Chapter Title
PowerPoint Image Slideshow
9.1: Tracking Inflation
9.2: How to Measure Changes in the Cost of
9.3: How the U.S. and Other Countries
9.4: The Confusion Over Inflation
9.5: Indexing and Its Limitations
Big Bucks in Zimbabwe
This bill was worth 100 billion Zimbabwean dollars when issued in 2008.
There were even bills issued with a face value of 100 trillion Zimbabwean dollars. The bills had $100,000,000,000,000 written on them.
Unfortunately, they were almost worthless.
At one point, 621,984,228 Zimbabwean dollars were equal to one U.S. dollar.
Eventually, the country abandoned its own currency and allowed people to use foreign currency for purchases. (Credit: modification of work by Samantha Marx/Flickr Creative Commons)
9.1 Tracking Inflation
Inflation – a general and ongoing rise in the level of prices in an entire economy.
Inflation does not refer to a change in relative (individual) prices.
There is pressure for prices to rise in most markets in the economy.
Basket of goods and services – a hypothetical group of different items, with specified quantities of each one meant to represent a ??typical? set of consumer purchases.
Used to calculate the price level, by looking at how the prices of those items change over time.
Computed using a weighted average.
Index number – a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100.
no dollar signs or other units attached.
Base year – arbitrary year whose value as an index number economists define as 100.
Indexing allows easier eyeballing of the inflation numbers between different years.
(Level in new year – Level in prior year) x 100 = Percentage change
Level in prior year
9.2 How to Measure Changes in the
Cost of Living
Consumer Price Index (CPI) – a measure of inflation that U.S. government statisticians calculate based on the price level from a fixed basket of goods and services that represents the average consumer’s purchases.
Change in fixed basket of goods and services vs. change in cost of living
Substitution bias – an inflation rate calculated
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