[Every Week] Financial Literacy Flashcards
What is inflation?
It’s win the currency loses purchasing power.
Example: So in other words….a house in 1930 cost you $3K…to get that same house today you would need to hand over $300K
How is inflation calculated?
The inflation rate is the percentage increase in the price of goods per year.
For example, if the inflation rate is 2%, then a $1 candy bar will cost $1.02 in a year.
What is “demand-pull” inflation?
occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy’s productive capacity.
What is “cost-push” inflation?
It refers to rising costs of production (usually in the form of wages) contributing to increasing pricing pressure. One of the signs of possible cost-push inflation can be seen in rising commodity prices, as commodities like oil and metals are major production inputs.
Will an increase in commodity pricing cause inflation?
Yes. A rise in copper for example will cause copper pipes to be more expensive to manufacture….which means plumbers will have to pay more…which means your home’s plumbing problems just got more expensive.
As the unemployment rate raises…what happens to inflation?
Unemployment rate rising means more people are OUT OF WORK…looking for jobs. This means employers dont have to pay as much to keep good people…so inflation is kept in check.
unemployment high = no inflation
unemployment low = cause of inflation (cost-push)
Why is the unemployment rate such an important factor in inflation?
Employment is a businesses largest cost. Its the 80/20 rule. 80% of a business cost is labor. When labor rates (what you pay your employees) goes up….then you have to charge more for your products and services to stay profitable.
When you raise prices….you cause inflation. More dollars needed for the same product than before.
Watch this video.
https://www.youtube.com/watch?v=T8-85cZRI9o&t=0s&index=34&list=PLEwrZI4M8Wkk7HI7gHPyxfdZ_h1QhlQdW
Do United States has already experienced to currency collapses due to inflation what were the two?
The first was the Continental currency during the revolutionary war. The second was confederation notes during the Civil War.
Why is inflation consider the silent tax?
Because it reduces the value of each dollar without legislation or warning.
so…it silently turns the “value” or purchasing power of your dollar into $0.97! (ouch! sad face)
Demand Pull Inflation
occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy’s productive capacity. … Rising energy prices caused the cost of producing and transporting goods to rise.
How do governments “borrow” money?
by selling bonds
How does inflation reduce the value of money?
More dollars are needed to buy the same stuff you purchased last year for a lower dollar amount. So the value or purchasing power of each dollar has gone down.
