InflationChanges in Pricing

Price Comparisons• 1936 - $1989• 2010 - $30,171• 2012 - $110,000

• 1969 - $3714• 2012 - $22,467• Mint - $67,700

• 1987 - $64.99• 2012 - $126.63• In Box - $500• Respectively - $33.13

Inflation

•Increase on average level of prices over time

AverageLevel ofPrices

Total G/SGDP/GNP

Q

$

AS

AD

Rate of Inflation

•Comparing the CPI of a base year to CPI of other years

•2-4 % is normal and good•Deflation – decrease in the average level

of prices

% = A – B x 100 A

Types of Inflation

•Creeping Inflation▫Low inflation for a long period of time

•Chronic Inflation▫Inflation steadily rising over a long period

of time•Hyperinflation

▫Out of control▫1000%

Theories

•Quantity▫Too much money in the economy▫More dollars are printed than the country’s

worth•Demand –Pull

▫Consumer demand is too high•Cost-Push

▫Costs of production decrease supply▫Costs shifted to consumers

Demand-Pull

$

Q

AS

ADAD2

E

E2

Cost-Push

$

Q

AD

AS

AS2

EE2

Questions

•What should be done to combat inflation?•Should economic growth be slowed to

guard against inflation?•How would you stop inflation?•Who should be responsible for this in the

US?