data.bls/cgi-bin/cpicalc.pl

2. Inflation – a rise in the general level of prices. Due to the increase in prices, each dollar has less purchasing power (less value). http://data.bls.gov/cgi-bin/cpicalc.pl

3. Inflation Essential Questions: What are the causes of inflation? How does inflation impact Americans and the U.S. economy in general?

4. Demand-Pull Inflation When the U.S. economy goes through a period of economic boom (expansion), more Americans are working and many are working longer hours. Americans have a lot more money to spend. When these Americans go to stores to spend their new wealth there will be an increase in demand for virtually all goods and services. This causes the aggregate demand curve to shift to the right (AD²).If aggregate demand increases faster than aggregate supply, a shortage of goods will pull prices higher. This leads to a higher price level (P²),known as inflation. It also leads to an increase in production and real GDP increases (Y²). Economists call this “too many dollars chasing too few goods”. AS P² P¹ AD² AD¹ Y² Y¹

5. Cost-Push Inflation Inputs are the ingredients that go into producing goods and services. Energy (oil) costs, the price of raw materials (iron ore), and labor costs are examples. When there is an increase in the cost of one of these inputs, it can lead to inflation. Rising input costs cause producers to offer less of their products for sale at all prices because there is less profit in each unit sold. A decrease in aggregate supply (AS²) will cause the price level to rise (P²),also known as inflation. It will also lead to less production, and real GDP decreases (Y²). This occurred in the 1970s when an oil shortage led to higher prices of most goods and services. Economists called this “stagflation”, as it led to inflation as well as a stagnant economy (an economy that wasn’t growing). AS² AS¹ P² P¹ AD Y² Y¹

6. What impact does inflation have on interest rates? Why does it have this impact?

7. Consumer Price Index Detailed Report http://www.bls.gov/cpi/ “CPI Data” → “Tables” → “Supplemental Files” → “Archived Supplemental Files” → “Historical CPI-U”

8. Inflation Summarizer: Word Splash: Summarize lesson 4.4 in the space below by using the following words in a word splash: Inflation, Consumer Price Index, Demand-Pull, Cost-Push, Retirees, Lenders

9. Inflation is an increase in the general level of prices from one year to the next and can be calculated using the Consumer Price Index. There are two basic causes, demand-pull and cost-push. Demand-pull inflation occurs when there is too much spending in the economy. This can occur when the economy is booming. If more people have jobs and plenty of money to spend, this could result in too many dollars chasing too few goods. Cost-push inflation occurs when businesses encounter higher costs of production. This could be the result of increased energy costs (an oil shortage) or increased labor costs (an increase in minimum wage). In order to maintain profit, businesses must increase their prices, resulting in inflation. Retirees are hurt particularly hard by inflation because many of them live on fixed incomes. Lenders of money are also hurt because they are paid back with inflated dollars that have less purchasing power.