The document discusses inflation in the United States since 1954. It provides examples of price increases for various goods from 1954 to 2005, with tomatoes and fuel oil seeing the largest increases over 50%. It then discusses measures of inflation including the Consumer Price Index and definitions of demand-pull and cost-push inflation. The document concludes by examining how different groups are helped or hurt by unanticipated inflation, with those on fixed incomes or savings hurt while borrowers may benefit.

1. Inflation Since 1954 Inflation – overall increase in prices Deflation – decrease in prices (1954) Up in 2005 Tomatoes 50% Fuel Oil 40% Butter 28% Gasoline 26% Home gas 16% Chicken 8% C ol. Tuition 9% Sausage 7% S ports tickets 7% Down in 2005 Eggs -20% PCs -14% Photos -14% TVs -12% Lettuce -8% Toys -6% Cars -4% Girls cloth -1% Above about 2.5% inflation is considered too much. [3.3% in 2005]

2. “ It looks like inflation was 3.3% last year. We need a contractionary monetary policy.”

3. Inflation is ….a rise in the general level of prices

5. The main measure of inflation . “Market Basket” of over 300 goods and services CPI

6. Consumer Price Index (CPI) [CPI measures cost of living relative to a base year[100] The CPI is a market basket of 364 items at 21,000 establishments in 91 cities that the typical householder buys. It does not include exports because we do not buy exports but does include imports . About 55% of the CPI is services .

7. “ Rule of 70” _______ __________________ “ Rule of 70” = % annual rate of increase (3%) = 23 years [ Inflation (prices to double)] 70 70 70 [ Investments to double] 10 = ______ 12 = _____ 9 = _____ [ GDP (standard of living) to double] ] 7 years 6 years 8 years 70

8. Current Inflation Data

10. Motorola’s “Brick” to the RAZR The 1 st portable cell phone (1984) [Motorola ’s “The Brick” ] took 10 years and $100 million to develop , and cost $3,995 . It weighed 2 pounds and offered just a half-hour of talk time for every recharging. C onsumers lined up in droves to buy the world’s first cell phone . We want the “brick.” Only $ 3,995, we want 2.” It was called the Dyna TAC 800X . Motorola says the wafer-thin RAZR represents the tip of the iceberg of what phone designers will be able to do. The RAZR cost $199.99 . Cell phones, like computers, have become smaller , smarter , and cheaper . The $3,995 would be like $8,000 today, more expensive than a large screen plasma TV. The 2 pound “ Brick ” 3 oz. RAZR

11. First Computer[ENIAC]-$486,804.22 The ENIAC [ E lectronic N umerical I ntegrator A nd C omputer] debuted in 1946 . It was the 1 st general purpose electronic digital computer , filling a room 2 stories high . It weighed 30 tons , was 80 ft long & had 17,468 vacuum tubes . Price was $486,804.22 .[the “beast” ]

13. Computer Quality Over Time *These could execute 330,000 computations per sec(2 billion now). These had 5 MB disk drives. Today Dell makes computers with 200GB, 30,000 times larger. Stores were selling them for $3,300 after buying them for $2,000. M. Dell – 2 nd richest TX He bought parts from BYTE Magazine for $600 and sold them for $1,500-$2,000. 1981 IBM PC 4.77MHz 160 KB floppy drives $3,300 1991 Compaq 486 33 MHz 120 MB hard drive $2,300 2005 Dell 9100 Pentium 4 512 MB, 200 GB $1,099

15. I n the 1920s, Germany staggered under the effects of hyperinflation. This worthless pile of money was supposed to be burned under supervision.

16. Countries with Inflation Problems in Last 10 Years Countries In Last 10 Years With Inflation Problems Former Yugoslavia - 15,201%; Congo - 3,860%; Russia - 1,202%; Brazil - 1,038; Albania - 226%; Mongolia-202%; Zambia-191%, & Cambodia-177% 10 Year Average Inflation [1989-1999] Bulgaria – 68%; Poland – 49%; Romania – 76%; Lithuania – 41%; Bosnia & Herzegovina–13,118%; Armenia–106%; Azerbaijan–233%; Belarus-162%; Tajikistan-688%; Uzbekistan–304%; U kraine- 169%;

17. The Three Worst Inflations Hungary June 1945-June 1946 Yugoslavia Jan. 1993 – Jan. 1994 Germany July 1922 – Jan. 1924

18. Hyperinflation Examples 100-billion Mark Note issued in Oct, 1923 [Would buy two stamps or 2 beers in 1923] [A stamp cost $50 billion] Milliard means “billion”

19. One Trillion Mark Note [Billion in Germany] issued in Nov., 1923 [1,000,000,000,000] It took 5 of these notes to buy a newspaper. Where we have million, billion, and trillion, the Germans have million, milliard for billion, and billion for trillion.

20. This Yugoslavia Note had the most zeros (11) ever and was issued in 1993.

21. This German woman in Berlin used German currency to light her stove because the money was almost worthless.

22. One Billion Yugo Dinara Bill [In 1994, this 1 billion dinara bill was required to purchase a single egg and the price of a “Big Mac” at McDonald’s in Belgrade was 10 billion dinara.] A Snickers bar cost 6 million dinars. A video recorder cost 20 billion dinars. One U.S. dollar was worth 10 million dinars. The dinar became as worthless as toilet paper.

23. If We had Yugoslavia’s Problem, This Is What Our Restrooms Would Look Like.

24. Misery Index Inflation Rate + Unemployment Rate = Misery Index Arthur Okun developed the economic “discomfort index” to summarize the “health of the economy.” Jimmy Carter used it against Gerald Ford and won. Ronald Reagan used it against Carter (20%) and won. Arthur Okun

25. Misery Index

26. Highest Denomination Note Issued In History “ 100 Quintillion Pengo Note of 1946” [ “100,000,000,000,000,000,000” ] From Aug, 45-July 46, prices rose an average of 20% per day. In the worst month, July, 46-they rose 419 quadrillion (quadrillion is the letter “1” followed by 15 zeros) [1945-46 inflation was 3.81 octillion] (381,000,000,000,000,000,000,000,000,000) Was worth 25 cents

27. Misery Index 1948-2004

28. Year One Real Income $ 30,000 $30,000 = ----------------- 1.00 Next year you get a $1000 raise... inflation is up 10% but, $31,000 ----------- 1.10 ( price index in hundredths) $28,181 = Your real wage

29. Who is helped or hurt by unanticipated inflation?

31. Hurt, if interest rate < inflation Savers?

32. Helped, money paid back is worth less Debtors or Borrowers?

33. Hurt, money paid back worth less Creditors (Lenders)?