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What’s Up?. Inflation A rise in the average price level. Painfully high gas prices!. How does the government know if the average price level is up?. They send people to the store to check. Consumer Price Index. Measures price changes in commonly purchased items. June $150. $165.

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what s up
What’s Up?

Inflation

A rise in the average price level

how does the government know if the average price level is up
How does the government know if the average price level is up?
  • They send people to the store to check.
  • Consumer Price Index. Measures price changes in commonly purchased items.

June $150

$165

Dec $180

how to calculate the rate of inflation as a percentage
How to calculate the rate of inflation as a percentage

Rate of inflation = Difference between 2 index #’s

Divided by the 1st # given x 100

  • Assume the CPI in 1998 was 145 and in 2000 it was 164. What was the inflation rate during this time period?
  • 164-145 ,

145

  • 19_

145 x 100 = 13 %

  • Could you expect your income to go up by 13% in 2 years?
  • If you made $35, 000 in ’98, how much would you need to make in 2000 just to maintain your same standard of living?
  • 13% x $35,000 = $4,450 (that’s how much of a raise you need) or you need to make $39,450 in 2000.
what causes prices to go up
What causes prices to go up?
  • Good Question!
  • Demand-Pull Inflation
  • Occurs when the total demand for goods and services exceeds total supply or when the government prints “too much money”
  • Cost-Push Inflation
  • Occurs when businesses raise prices in response to higher resource costs (raw materials, energy, wages)
  • What would happen if a government let their money supply get out of control?
  • “too much money chasing too few goods”
germany s money supply
Germany’s Money Supply
  • In 1919 Germany had 50,000 marks (millions of marks) in circulation.
  • In 1923 Germany had 496,000,000,000,000 marks (in millions) in circulation.
hans would you run to the store and get a loaf of bread here s a billion marks
“Hans, would you run to the store and get a loaf of bread? Here’s a billion marks.”

1 Billion Mark, October 20, 1923 Reichsbanknote Would buy ¾ Pound of Meat, 3 eggs or 1/6 Pound of ButterBread is 670 Million Mark a loaf.

slide10

100 Billion Mark, Nov. 3 1923 City of Freital On November 1 100 Billion Mark would buy 3 pounds of meat.Bread is 3 Billion Mark a loaf.On November 15 100 Billion Mark would buy 2 glasses of beerBread is 80 Billion Mark a loaf.

slide11
Prices were changing so fast that in a café, people would order at one price and have to pay a higher price on their way out.
  • Printing presses only printed on one side of a bill so they could print faster.
  • One egg cost .08mark in 1914 and 80 billion marks in 1923
slide12
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