DO NOWProvide an example for each type of unemployment we learned about yesterday. (structural, cyclical, frictional, and seasonal)
AGENDA1. DO NOW2. Review3. Inflation Notes4. Frontline: 10 Trillion and Counting
COMPETENCIES/OBJE CTIVESSWBAT describe the types of inflation, and identify two sources of inflation.SWBAT Identify the problems that unexpected inflation creates.
Inflation Inflation- an increase in the economy’s price level. Inflation reduces the value of money Measured on an annual basis Inflation rate- percentage increase in the price level from one year to the next.
Types of Inflation Hyperinflation- extremely high inflation. Disinflation- a reduction in the rate of inflation Deflation- a decrease in price level.
Two Sources of Inflation Inflation is an increase in the economy’s price level resulting from an increase in aggregate demand or a decrease in aggregate supply. Demand-pull inflation- inflation resulting from a rightward shift of the aggregate demand curve; greater demand pulls up the price level. Cost- push inflation- inflation resulting from a leftward shift of the aggregate supply curve; reduced supply pushes up the price level.
Impact of Inflation Since 1946 the the CPI (Consumer Price Index) has increased elevenfold. It now takes $11.80 dollars to purchase what $1 purchased in 1946. On average the CPI has increased 3.8% per year.
Think If your boss offers you a raise that will make your salary about 4% more than it was before however inflation unexpectedly goes up by 5% will you be making more or less money than you did before?
Inflation and Interest Rates Real interest rate= nominal interest rate- inflation rate Nominal interest rate- the interest rate expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement. Real interest rate- the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate. Lenders must predict how much inflation will impact the amount of money they will receive in terms of purchasing power.