Introduction to Inflation

Consumer Price Index (CPI)
-Consumer Price Index: measures the cost of the market basket of goods of a typical urban American family
     *Example: Televisions, computers, etc. (Welfare recipients and other people who recieve government assistance are excluded)
            -Formula: cost of market basket in a given year       x 100
                          cost of market basket in base year
                   
                     *to find your market basket simply multiply the price by the quantity of an item for each item and add them all together.

Deflation
-Deflation: fall of the price level
     *Example: Gas prices are a certain price and change (not significant drop)

Inflation
-Inflation: general rise of the price level (not dramatic rise)
     *Consistent across the board
           -Example: Price of movie tickets were lower and now cost more (price gradually increased)
                   *Hyperinflation: occurs when there is a very rapid rise in the price level (extreme rate of inflation)

How to find Inflation
-Formula: (CPI 2) - (CPI 1)   x 100          
               CPI 1
      *Basically Remember New minus Old over Old times 100

Types of Inflation
-3 Types of Inflation:

1. Cost-Push Inflation: higher production cost which increases prices

              -usually a result of supply shock
              -increasing costs force producers to increase prices
                     *Example: A freeze in Florida would destroy crops leading farmers to have to raises prices
     2.  Demand-Pull Inflation: too many dollars chasing too few goods

             -demand pulls up prices creating a shortage and an over-heated economy with excessive spending with same amount of goods
                     *Example: A concert selling tickets at $35 a piece will have to raise prices when demand increases
     3.  Political Panics: 2 reasons
              -Depression
              -Recession
                    *Example: Great Depression

Here's a Video to Assist You:

Who inflation Hurts/Helps People
- Inflation HURTS:
        1. Lenders (loan money at a fixed rate)
        2. People with fixed incomes
        3. Savers
        4. People with fixed wages
-Inflation HELPS:
        1. Debtors

This Video Gives Easy to Grasp Examples:

More Practice on Who is HELPED and Who is HURT: