This resource is made up of a powerpoint presentation on inflation, a worksheet looking at who is hurt by inflation and a lesson activity getting students to discuss and rank costs of inflation to firms. What it is, where it comes from and how it can bite you to frame the issue and to get a better sense of how inflation affects youth. Students need to fill in the table with the missing values for each of the problems. Causes of inflation costpush inflation or supplyshock inflation is a type of inflation caused by large increases in the cost of important goods or services where no suitable alternative is available. This means the value or purchasing power of money falls. The main cost of inflation is a redistribution of income. The term inflation is usually used to indicate a rise in the general price level, though one can speak of inflationary movements in any single price or group of prices. Inflation worksheet, activity and powerpoint with suggested.
Most economists, whether monetarists or keynesians, agree that proposition. Inflation use the following worksheet to help you calculate the impact of inflation on your childs college costs. Why wont it buy as much as it did last month or last year. It starts by looking at the causes of inflation, specifically focusing on its use as a form of taxation. According to milton friedman, it is always and everywhere a monetary phenomenon. Salient wealth redistributions are a defining feature of inflation, as savers and fixed income individuals see a relative wealth reduction. Inflation is an increase in the price of goods and services. For example, if the price of gasoline rises, drivers must pay more to fill their tanks and they have. But the situation of monetary expansion or budget deficit may not cause price level to rise. Inflation can also happen when workers demand more money or when the raw materials that producers need rise in price. Inflation pdf terms,consequences of inflation,curb inflation. Jul 22, 2019 inflation is a measure of the rate of rising prices of goods and services in an economy.
Economists generally think that this money supply increase monetary inflation causes the goodsservices price increase price inflation over a. A sustained increase in the general level of prices. Types of inflation there are four main types of inflation with four different causes. As the price level rises each pound buys fewer products. May 18, 2019 inflation is when prices rise, and deflation is when prices fall. Inflation measures how much more expensive a set of goods and services has become over a certain period. Calculate changes in income redistribution caused by to inflation. Over time, inflation reduces the purchasing power of a dollar, thereby lowering its value.
Costpush inflation or supplyshock inflation is a type of inflation caused by large increases in the cost of important goods or services where no suitable alternative is available. The main causes of inflation are either excess aggregate demand ad economic growth too fast or cost push factors supplyside factors. Inflation exists when money supply exceeds available goods and services. Mkhkin the problem of inflation has been of central concern to american poli cymakers since the mid 1960s. Inflation and activity two explorations and their monetary policy implications prepared by olivier blanchard, eugenio cerutti, and lawrence summers 1 authorized for distribution by maurice obstfeld november 2015 abstract we explore two issues triggered. The effects of inflation both economic and ethical will be outlined, along with corresponding methods to evade or avoid these results. The most important inflation is called demandpull or excess demand inflation. The causes of inflation federal reserve bank of kansas city. Lifetime inflation activity federal reserve bank of st. Inflation in emerging and developing economies open knowledge. Causes and consequences of inflation munich personal repec. Demandpull conditions occur when demand from consumers pulls prices up. For inflation factors, see the section cost and inflation. This is a student study guide designed to assist the students with the inflation lesson.
Inflation pdf terms,consequences of inflation,curb inflation hello friends welcome to. Demandpull inflation is caused by an increase in the conditions of demand. When the total money in an economy the money supply increases too rapidly, the quality of the money the currency value often decreases. Jul 14, 2015 this lesson explores different types of inflation and terms associated with this economic concept. Former is called demandpull inflation dpi, and the latter is called costpush inflation cpi.
Of particular concern has been the rise in the core, or sustained, inflation rate from below the 2 percent level in the early 1960s to near the doubledigit level by the late 1970s. Salient wealth redistributions are a defining feature of inflation, as savers and fixed income. From the data in the table on the rate of change in consumer prices, in which year did the economy experience i the highest rate of inflation. The effects of inflation on economic growth and on its macroeconomic determinants muhammad khan to cite this version. Inflation and activity two explorations and their monetary. Inflation, its causes and cures im swiss mises institute. Find inflation lesson plans and teaching resources. In this context, understanding the dynamics of last years sharp price increases appears particularly relevant, as high inflation.
Inflation introduction worksheet lesson plan economics investing. Causes, costs, and current status semantic scholar. You may choose a standard worksheet or customize the worksheet to your teaching needs. Hyperinflation is a key concept in economics, and this quiz worksheet will help you test your understanding of its definition as well as related principles. This might be because of a rise in commodity prices such as oil, copper and agricultural products used in food processing. Copies of either purchased dollar bill play money or the dollar bill worksheet this can be found in high school economics second edition, lesson thirteen procedure. The right set of antiinflation policies, those aimed at reducing inflation, depends on the causes of inflation. This econedlink slide show introduces some of the causes of inflation on prices to students.
In this lesson you will examine the various causes and theories of inflation as well. Which economic terms or concept do the following statements describe. This lesson is part of a larger unit on economic indicators. The definition of inflation according to mises 5 index numbers are of no use and have a very uncertain meaning. An increase in the general level of prices in the economy. These could either be an increase in the ability to buy goods or an increase in the willingness to do so. A recent example has been a surge in the world price of wheat. Have them calculate the consequences of inflation by using the worksheet. Inflation is a measure of the rate of rising prices of goods and services in an economy. This website and its content is subject to our terms and conditions. Costpush occurs when supply cost force prices higher.
Inflation and unemployment are closely related, at least in the shortrun. This paper sheds light on the role of inflation in government finance and the effects thereof. Describe how inflation causes the value of currency to decline. It is caused by a continual decline in aggregate demand andor an increase in aggregate supply caused by. Inflation and reflect a dozen diverse views on one of the nations central economic problems.
Inflation main causes of inflation economics tutor2u. Imperfect competition increased taxes rising wages. Some inflationary pressures direct from the domestic economy, for example the decisions of utility businesses providing electricity or gas or water on their tariffs for the year ahead, or the pricing strategies of the food retailers based on the strength of demand and competitive pressure in their markets. A deficit budget may be financed by the additional money creation. These include food, furniture, clothing, transportation, and recreation. Make the connection between the inflation rate and price increase as students. Inflation is a continued rise in the average price level. Causes of inflation when the total money in an economy the money supply increases too rapidly, the quality of the money the currency value often decreases. Former leads to a rightward shift of the aggregate demand curve while the latter causes aggregate supply curve to shift leftward. The effects of inflation on economic growth and on its.
Inflation has a stubborn, selfsustaining momentum, not susceptible to cure by conventional measures of monetary and fiscal restraint. A theoretical approach inflation is defined as a continuing and rapid rise in the price level. Economists generally think that this money supply increase monetary inflation causes the goodsservices price increase price inflation over a longer period. When taken to their extremes, both are bad for economic growth, but for different reasons. Inflation that loss of purchasing power savers suffer as a result of inflationary monetary policies is another means of government finance. The effects of inflation on economic growth and on its macroeconomic determinants. Inflation causes losses for both consumers and the overall economy. The causes of zimbabwes hyperinflation, its effects and how it was stopped are particularly instructive. Inflation can come from both the demand and the supplyside of. Our emphasis here is on diagnosis of the causes of inflation and a description of the effects of inflation, not on specific policy recommendations to end inflation. The united states has low inflation now, but during the 1970s the price level doubled. In times when the economy is good and people have enough money they want to buy more products than factories can produce, so the prices go up.
Both are responsible for a general rise in prices in an economy. You may have heard relatives talk about the good old days when a dollar would buy something. Basically, two causes of inflation have been identified, namely, demandpull and costpush. Inflation is a very old problem and some countries even in recent times have experienced rates as high as 40 percent per month. Costpush inflation is due to an increase in production costs. While avoiding this tax is difficult in many instances because of the primacy of money in a monetary economy, the tax codes of most developed countries allow avoidance. The end product becomes more expensive and has to be sold at a higher price. Reinforce students understanding of how inflation causes the value of money to decline over time with examples from the inflation introduction worksheet from t. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a.
Causes, costs, and current status congressional research service 2 a monetary phenomenon resulting from and accompanied by a rise in the quantity of money relative to output. This means that, on average, the prices of products in an economy are going up over time. Task 3 test your understanding a use the table below, construct a cpi using 2009 as the base year. Causes, costs, and current status congressional research service 1 introduction inflationthe general rise in the prices of goods and servicesis one of the differentiating characteristics of the u. The definition of inflation according to mises 3 drop in purchasing power, and the term deflation to signify cashinduced changes resulting in a rise in purchasing power. Putting it all together use the following worksheet to help you calculate the impact of inflation on your childs college costs. Inflation and hyperinflation in the 20 century causes. Or inflation is attributed to budget deficit financing. The price level measures the average prices of goods and services. Inflation and activity two explorations and their monetary policy implications prepared by olivier blanchard, eugenio cerutti, and lawrence summers 1 authorized for distribution by maurice obstfeld november 2015 abstract we explore two issues triggered by the crisis. Inflation is a sustained rise in the general price level. The inflation calculator uses monthly consumer price index cpi data from 1914 to the present to show changes in the cost of a fixed basket of consumer purchases. Inflation is often defined in terms of its supposed causes. Timeseries data for the period 1990 2011 were used to examine the impact of inflation on economic growth.
If the economy has overheated, central banksif they are committed to ensuring price stabilitycan implement contractionary policies that rein in aggregate demand, usually by raising interest rates. The costs of inflation are related to its rate, the uncertainty it. This resource is made up of a powerpoint presentation on inflation, a worksheet looking at who is hurt by inflation and a lesson activity getting students to discuss and rank costs of inflation. Economic growth, inflation, and unemployment are the big macroeconomic issues of our time. In this lesson, students learn about the concept of inflation its meaning, causes and implications, as well as the strategies for mitigating negative outcomes. Tes global ltd is registered in england company no 02017289 with its registered office. Inflation is when prices rise, and deflation is when prices fall. The right set of anti inflation policies, those aimed at reducing inflation, depends on the causes of inflation.
Inflation introduction worksheet lesson plan economics. If the economy has overheated, central banksif they are committed to ensuring price stabilitycan implement contractionary policies that rein in. Gives an introduction to inflation and the fact that things cost more in the future supply and demand. Check your understanding of the types of inflation in economics with an interactive quiz and printable worksheet. Causes of inflation inflation means there is a sustained increase in the price level. Motivated by this controversial, this study examined the impact of inflation on economic growth and established the existence of inflation growth relationship. This is a complete lesson plan that explores the calculations behind inflation, its causes and effects, and why a low, but positive, inflation rate is the policy goal of many governments. In his seminal work, phillip cagan defined hyperinflation as beginning when monthly inflation rates initially exceed 50 percent. In this view, eradicating inflation would have a prohibitively high cost in widespread and sustained unemployment. You can have both inflation and deflation at the same time in various asset classes. Inflation results in higher prices, making goods and services potentially more expensive and less affordable. Lifetime inflation activity author mark bayles, senior economic education specialist introduction this online activity shows how to use fred, the federal reserves free economic data website, to measure changes in the cost of living in your lifetime. Then, following the common idea of inflation, mises 1912, 1981, p. Fourth, it complements these empirical exercises with.
Inflation, its causes and cures is one of a series of aea studies in the general areas of inflation and economic growth. Demandpull inflation is caused by an excess demand at full employment. Make the connection between the inflation rate and price increase as students work through the problems together or independently. Inflation can arise from internal and external events. Inflation is mainly caused by excess demand or decline in aggregate supply or output. Inflation causes, effects and the change of money value. Jan 16, 2020 there are two main causes of inflation. Calculating inflation worksheet gr 12 task 1 calculate inflation task 2 study the diagram above. Costpush inflation occurs when businesses respond to rising costs, by increasing their prices to protect profit margins. While avoiding this tax is difficult in many instances because of the primacy of money in. Inflation causes losses for both consumers and the overall.