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Boundless Lecture Slides
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Available on the Boundless Teaching Platform
Slide2Using Boundless Presentations
The Appendix
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About Boundless
Slide4]
Inflation
Inflation
Defining, Measuring, and Assessing Inflation
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Slide5Defining Inflation
Measuring Inflation
Price Indices and the Rate of Change of Prices The Costs of Inflation Distribution Effects of Inflation Deflation
Defining, Measuring, and Assessing Inflation
Inflation
>
Defining, Measuring, and Assessing Inflation
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www.boundless.com/economics/textbooks/boundless-economics-textbook/inflation-21/defining-measuring-and-assessing-inflation-101/
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Appendix
Slide7Key terms
cost of living The average cost of a standard set of basic necessities of life, especially of food, shelter and clothingdeflationary spiral
A situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.inflation An increase in the general level of prices or in the cost of living.market basket
A list of items used specifically to track the progress of inflation in an economy or specific market.menu costs The cost to a firm resulting from changing its prices.money supply The total amount of money (bills, coins, loans, credit, and other liquid instruments) in a particular economy.nominal interest rate The rate of interest before adjustment for inflation.price index A statistical estimate of the level of prices of some class of goods or services.
purchasing power The amount of goods and services that can be bought with a unit of currency or by consumers.purchasing power
The amount of goods and services that can be bought with a unit of currency or by consumers.purchasing power The amount of goods and services that can be bought with a unit of currency or by consumers.Real interest rate
The rate of interest an investor expects to receive after allowing for inflation.
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Inflation
Slide8shoeleather costs
The cost of time and effort that people spend trying to counter-act the effects of inflation.velocity of money The average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time.
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Inflation
Slide9U.S. Inflation Rate
The U.S. inflation rate is measured by comparing the price of goods in one year to the price of goods in a previous base year.
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Wikimedia.
"US Inflation rate."
GNU FDL
http://commons.wikimedia.org/wiki/File:US_Inflation_rate.png
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Inflation
Slide10Inflation and the Money Supply
While the two variables are not exactly equivalent in the short run, over time the money supply has had a direct relationship to the level of inflation. This is consistent with the quantity theory of money.
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Wikipedia.
"M2andInflation."
CC BY-SA
http://en.wikipedia.org/wiki/File:M2andInflation.png
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Inflation
Slide11Consumer Price Index and Inflation
The above graph shows the annual inflation rate and the consumer price index from 1913 to 2003. As long as the inflation rate was above zero, the CPI was increasing.
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Wikimedia.
"Consumer Price Index US 1913-2004."
GNU FDL
http://commons.wikimedia.org/wiki/File:Consumer_Price_Index_US_1913-2004.png
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Inflation
Slide12Interest Rates and Inflation
Part of the reason that lenders charge interest is to recoup the cost of inflation over time.
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Wikimedia.
"Malawi interest rates."
Public domain
http://commons.wikimedia.org/wiki/File:Malawi_interest_rates.JPG
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Inflation
Slide13The Great Depression
Most economists agree that the high levels of deflation during the 1930s made the Great Depression much more severe and long-lasting. It discouraged consumption, borrowing, and investment that would increase economic activity.
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Wikimedia.
"Unemployed men queued outside a depression soup kitchen opened in Chicago by Al Capone, 02-1931 - NARA - 541927."
Public domain
http://commons.wikimedia.org/wiki/File:Unemployed_men_queued_outside_a_depression_soup_kitchen_opened_in_Chicago_by_Al_Capone,_02-1931_-_NARA_-_541927.jpg
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Inflation
Slide14Menu Costs
The cost to a restaurant to change the prices on menus is incurred even with low and expected inflation.
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Wikipedia.
"Del Taco menu board."
CC BY
http://en.wikipedia.org/wiki/File:Del_Taco_menu_board.JPG
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Inflation
Slide15Hyperinflation in Zimbabwe
The photo shows bills worth millions and billions of dollars that were printed by the Zimbabwe government as a response to massive inflation. At one point the 50 billion dollar note was worth less than three US dollars.
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Flickr.
"Fifty Billion Dollars | Flickr - Photo Sharing!."
CC BY-SA
http://www.flickr.com/photos/villes/2693551009/
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Inflation
Slide16Attribution
Wiktionary.
"money supply." CC BY-SA 3.0 http://en.wiktionary.org/wiki/money_supply
Wiktionary. "inflation." CC BY-SA 3.0 http://en.wiktionary.org/wiki/inflation
Wikipedia.
"velocity of money." CC BY-SA 3.0
http://en.wikipedia.org/wiki/velocity%20of%20money
Wikipedia. "Inflation." CC BY-SA 3.0
http://en.wikipedia.org/wiki/Inflation
Wikipedia.
"Quantity theory of money."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/Quantity_theory_of_money
Wiktionary.
"market basket." CC BY-SA 3.0 http://en.wiktionary.org/wiki/market_basketWiktionary.
"purchasing power." CC BY-SA 3.0
http://en.wiktionary.org/wiki/purchasing_powerWikipedia.
"Consumer Price Index." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Consumer_Price_Index
Wikipedia. "Inflation." CC BY-SA 3.0
http://en.wikipedia.org/wiki/Inflation%23MeasuresWiktionary. "price index." CC BY-SA 3.0 http://en.wiktionary.org/wiki/price_index
Wiktionary. "cost of living." CC BY-SA 3.0
http://en.wiktionary.org/wiki/cost_of_living
Wikipedia.
"Price index."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/Price_index
Wiktionary.
"purchasing power."
CC BY-SA 3.0
http://en.wiktionary.org/wiki/purchasing_power
Wikipedia.
"shoeleather costs."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/shoeleather%20costs
Wikipedia.
"menu costs."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/menu%20costs
Wikipedia.
"Inflation."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/Inflation%23Effects
Wikipedia.
"Shoe leather cost."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/Shoe_leather_cost
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Inflation
Slide17Wikipedia.
"Menu cost."
CC BY-SA 3.0 http://en.wikipedia.org/wiki/Menu_cost
Wikipedia. "Real interest rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Real%20interest%20rate
Wikipedia.
"nominal interest rate." CC BY-SA 3.0
http://en.wikipedia.org/wiki/nominal%20interest%20rate
Wikipedia. "Inflation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Inflation%23Effects
Wikipedia.
"Inflation."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/Inflation%23Effects
Wiktionary.
"purchasing power."
CC BY-SA 3.0 http://en.wiktionary.org/wiki/purchasing_powerWikipedia. "deflationary spiral."
CC BY-SA 3.0
http://en.wikipedia.org/wiki/deflationary%20spiralWikipedia. "Deflation."
CC BY-SA 3.0 http://en.wikipedia.org/wiki/Deflation
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Inflation