Inflation - LESSON 17 INFLATION Prices in Grandmas Day Ever heard grandparents complain about todays prices Examples Were things really cheaper in the

Inflation - LESSON 17 INFLATION Prices in Grandmas Day Ever...

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LESSON 17 INFLATION 17-1 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Prices in Grandma’s Day Ever heard grandparents complain about today’s prices? Examples? Were things really cheaper in the “good old days”? Let’s look at two goods and compare prices over time …
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LESSON 17 INFLATION 17-2 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Movie Tickets and Big Macs ® What was average price of a movie ticket in 2012? What was average price of a movie ticket in 1967 (35 years ago)? What was average price of a McDonald’s Big Mac ® in 2012? What was average price of a McDonald’s Big Mac ® in 1967?
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LESSON 17 INFLATION 17-3 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY How Much Have Prices Changed? Measure percent change in prices from one year to another. Percent change formula: Price in Year 2 (2012) – Price in Year 1 (1967) / Price in Year 1 (1967) x 100
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LESSON 17 INFLATION 17-4 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY How Much Have Prices Changed? Goods Price in 1967 Price in 2012 Percent Change in Price 1967 Price in 2012 Dollars Movie Ticket $1.22 $7.92 McDonald’ s Big Mac ® $0.45 $4.33 Table 17.1-A Historic Prices
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LESSON 17 INFLATION 17-5 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY How Much Have Prices Changed? Goods Price in 1967 Price in 2012 Percent Change in Price 1967 Price in 2012 Dollars Movie Ticket $1.22 $7.92 549% McDonald’ s Big Mac ® $0.45 $4.33 862% Table 17.1-B Changes in Overall Price Level
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LESSON 17 INFLATION 17-6 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Purchasing Power Prices are the amount of currency (in dollars) needed to purchase particular goods and services. “Purchasing power” refers to the amount of goods or services that can be purchased with an amount of dollars. Could you survive today if you made the same salary as your grandfather did in 1967? The purchasing power of dollars is eroded by overall price increases. Because prices tend to rise (due to inflation), you'd need a much larger salary to maintain the same standard of living. You would need an increase in salary of 549 percent and 862 percent (for Big Macs ® and movie tickets) to be as well off as your grandfather was in 1967. How many Big Macs ® could be bought for $1 in 1967? In 2012?
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LESSON 17 INFLATION 17-7 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Inflation Inflation is a rise in the general (or average) level of prices of goods and services in an economy over a period of time.
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