5. By comparing Price Levels.
To help calculate price levels, economics use
the price index.
Price Index is a measurement that shows how
the average price of a standard group of
goods changes over time.
8. Category Examples
Food and Drinks Cereals, coffee, chicken, milk,
restaurants meals
Housing Rent, homeowners’ costs, fuel
costs
Apparel and upkeep Men’s shirts, women’s dresses,
jewelry
Transportation Airfares, new and used cars,
gasoline, insurance
The CPI market Medical Care Prescription medicines, eye care,
basket helps physician’s services
economists Entertainment Newspapers, toys, musical
calculate the instruments
average Education/Communi- Tuition, postage, musical
inflation rate services, computers
cation
for the
country. Other goods/services Haircuts, cosmetics, bank fees
12. The quantity theory of inflation states that too
much money in the economy causes inflation.
Inflation can occur when demand for goods and
services exceeds existing supplies.
Inflation can occur when producers raise prices in
order to meet increased costs.
Higher prices for raw materials can cause
costs to increase.