Download Inflation - Herricks

Inflation
Inflation = a general increase in prices
o Affects purchasing power of money

The Inflation Rate
o The percentage rate of change in price level over time

Price Indexes
o Measure how much prices change over time
o Consumer Price Index (CPI) is most common
o Current prices are compared to the CPI of a base year (base year always
100) ex: If CPI in 2010 was 200- what’s the % increase between the base
year(1983) and 2010?

Types of Inflation
o Creeping inflation
o Chronic inflation
o Hyperinflation

Theories on Inflation’s Causes
o Quantity Theory
o Demand Pull Theory
o Cost-Push Theory

Effects of Inflation
o Erosion of purchasing power
o Erosion of income especially if on Fixed income

Deflation
o Sustained drop in price level