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1.7 Inflation & Consumer Price Index

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24 views43 pages

1.7 Inflation & Consumer Price Index

Uploaded by

tomduke938
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Review Procedures

● I am not a resource
○
○

● Quiz each other


○ vocab, vocab, vocab
Clear Everything Off EXCEPT
a pencil & calculator
● Turn off phone - place IN stand
● Place backpack against the walls
● Roll up long sleeves
● Raise hand before you get up
Formative Testing Procedur e
Quiz Directions
● WRITE YOUR NAME
●

● Focus: Key words/Phrases


●

● Question = raise hand

● Finished = raise hand


Macro ONLY Unit 1: Basics of Econ

Lesson 1.7 Inflation & Consumer Price Index

EQ: How do economists measure the


economic health of nations?

Part 1: What is Inflation?


1.3 Macroeconomic
Indicators Cont.
GDP - Inflation - Unemployment
Learning Targets:
1. I can define inflation &
EQ #3 unemployment
How do a.

economists 2. I can calculate inflation &


unemployment rates
measure the
economic 3. I can defend my opinion on
health of how “perfect” these
indicators are.
nations?
But first………...
AN AUCTION
Auction Directions
Round 1:
● Only $1 bills accepted.
Round 2:
● Only $1 bills and $5 bills acceptd
Round 3:
● Only $1 bills, $5, $10 bills accepted
What is Inflation?
Inflation is an increase in the general price level that causes the
real value of money to decrease.
● That means your dollar will buy less today than it could buy in
previous years.

Inflation Rate: is the percentage increase in the overall


level of prices per year. *must be expressed as a %
● If inflation is higher than expected
then borrowers win.
Are there winners and ● If inflation is lower than expected
losers from inflation? then lenders win.
AKA are all people hurt
by inflation? Real interest rate =
nominal interest rate - inflation rate
White Board Check!
Which of the following scenarios best exemplifies inflation?
a. The price of gasoline decreases over several months, leading to
lower costs for consumers.
i.

b. A new technology causes a significant drop in the cost of


smartphones, making them more affordable.
i.

c. The general price level of goods and services increases steadily


over a year, reducing the purchasing power of money.
i.

d. The general price level of goods and services increases steadily


over a year, reducing the purchasing power of money.
Read the scenario and
decide if the person is
helped or hurt by
inflation.
Emily is a retiree who lives on a fixed pension. Her
pension amount has been set for several years and
does not change. Recently, the economy has
experienced higher inflation, causing the general
price level of goods and services to rise.

Helped Hurt
Alex recently took out a 30-year fixed-rate
mortgage to buy a house. At the time of the loan,
interest rates were relatively low, and Alex’s
mortgage payments were fixed. Currently there
was was rise in the level of inflation in his country.

Helped Hurt
Rachel and David are both affected by a period of high inflation in
different ways.
Rachel is a real estate investor who owns several rental
properties. s inflation increases, the prices for goods and
services rise, including rental rates. Rachel can raise the rents on
her properties to keep up with the higher costs.
David works as data scientist for a major technology company.
Currently, he has in year 2 of his 3 year fixed salary.

Helped Hurt
Rachel David
Measuring
Consumer
Inflation
The Consumer Price Index
● CPI measures the costs of the
market basket of a typical urban
family.

● A market basket is a hypothetical


set of consumer purchases of
goods and services.

● Price Index - measures the cost of


purchasing items and the index
value is always equal to 100 in the
selected base year.
CPI Calculations
1. Calc Market Basket
Freshman Year (Y1)= (Current Price x Current Quantity)
Senior Year (Y2) = (Current Price x Base Quantity) Prices
2. Calc Price Index Freshman Freshman Senior Senior
Yr Q Yr Yr Yr Q
C.P.I = current market basket
10 Pencils $0.10 $0.20 5
market basket base yr X 100 Pencils

3. What Does This Mean = inflation? 4 Reams


of Paper
$8.00 $7.00 3
Reams
of
Paper

1 Stapler $5.00 $10.00 1 Stapler


Video Questions
1. What is the difference
between CPI and CPE?

2. How should you use the


CPI?
1. Substitution Bias
Limitations 2. Product Improvements

To Accuracy 3. Innovation
Costs of Inflation
Three “costs” of inflation
Shoe-Leather Menu Costs Unit-of Account
● Increased costs ● Real costs of ● Inflation makes
of transactions changing listed money a less
caused by prices reliable unit of
inflation measurement
White Board Check!
Matching: match the vocab term on the
left with examples on the right. Note,
some may be used more than once.
Shoe- a. Alex owns a chain of coffee shops and faces high
B Leather inflation, which is causing the prices of coffee
beans and other supplies to rise rapidly.
Therefore, he has decided to install new digital
price tags.
b. Businesses facing high inflation started spending

A
Menu more time and resources managing their cash
Costs flow and making frequent bank visits to avoid
holding excess cash
Unit of c. Sarah is a small business owner who sells
C Account handcrafted jewelry. Currently she is finding it
difficult to determine the true cost of her materials
and set accurate prices for her products.
DUE NEXT CLASS

1. 1.7 Worksheet
Next Steps 2. Writing #2

For Success Helpful Videos


● CPI & Inflation (16 mins)

● Price Indices and Inflation &


Costs of Inflation (8 mins)
BRAIN
BREAK
NOTES OUT!

Part 2:
Unemployment
3 Definitions
Part 2:
Measuring Unemployment
Key Formulas
What is the
unemployment
rate?
Part 3: Categories & Types of
Unemployment - You’re the Expert
Types of
Unemployment
Frictional Unemployment
Cyclical Unemployment
Structural Unemployment
Types of Unemployment
Frictional Unemployment - Short-term unemployment caused
by people searching for/moving between jobs.

Structural Unemployment - mismatch between skills and jobs.

Cyclical Unemployment - unemployment caused by changes in


the business cycle.
Categories of
Unemployment
Discouraged Workers
Marginally Attached Workers
Underemployed
Categories of Unemployment (U6)
Marginally Attached - unemployed but not actively looking.
They search periodically.

Discouraged Workers- Subset of marginally attached - BUT


these workers have given up looking for work due to a variety
of factors .

Underemployed- Part-time workers who would like to be full


time OR skills are too high for their current position.
Challenge Question
Is it possible to reach 0%
unemployment in an economy?
Natural vs. Actual Rate
Remember:

● Frictional unemployment is the Nat Unemployment


time it takes to enter/exit and Rate = F + S
move between jobs.
Actual = Natural Rate +
Cyclical
● Structural unemployment is the
constant changing to the labor
force
1. 1.3 Worksheet
DUE

2. Review - come
Next Steps with notes
organized &
For Success laptop charged!

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