Lesson: Inflation

Lesson:  Inflation - Inflation is a process in which the price of a product or service is rising while money is losing its value.  It is a rising of the cost-of-living.  The price level rises persistently and then people need more and more money to pay for something.  For example, incomes rise, therefore, companies must pay more in salaries and wages.  And as prices rise, consumers must make more money when they go shopping.  But what we don'
t realize is that money gets smaller and smaller.  That is because of inflation.  Inflation is paying more money for the same price of a good or service than we used to.  However, a change in price is not inflation.  For example, if the price of a cheeseburger jumps to $22 and all other prices of products averages out to the same, then this is not inflation.  But if the price of a hamburger plus all other prices increase by a similar percent, then this is inflation.  A one-time jump in prices is not inflation.  It is an ongoing process.  Inflation is a general (across-the-board) rise in prices.
      Inflation is a serious problem and it robs us of our earnings.  However, there are a few occupations where inflation actually helps sellers.
      Calculating the Inflation Rate -

Inflation Rate = 126 - 120
                                 120         multiplied by 100   =   5% per year.

This equation shows the connection between the inflation rate and the price level.
     The most common types of inflation are Demand-Pull and Cost-Push.
Creeping inflation is actually desirable to some economists because of its expansionary effect upon the economy.  Product prices tend to increase ahead of resource prices as the economy approaches full employment.
Consumer Price Index - The Consumer Price Index (CPI) is a measure of the average of prices paid by consumers for a fixed basket of consumer goods and services.  The CPI tells you what has happened to the value of your money. 
      The CPI is defined to equal 100 in a reference base period.  For example, the