Subject:
Economics
Material Type:
Module
Provider:
Ohio Open Ed Collaborative
Tags:
Macroeconomics
Language:
English
Media Formats:
eBook

# Inflation Course Map & Recommended Resources

## Overview

A study of inflation, its measures, and consequences.  Students will understand how price information is collected and used to construct an index of the price level.  It is important that households and economic agents have a good understanding of the impacts of general price level changes on various economic units.  Policy makers use inflation information to understand the consequences of policy changes and as a guide to current and future policy.

# Learning Objectives

1. Explain why inflation is a concern (16)

2. Define inflation, deflation and disinflation (2,4)

3. Distinguish between the price level and inflation rate (2)

4. Calculate the inflation rate (2,5)

5. Use a price index to adjust for the effects of inflation (2,5)

6. Distinguish between nominal and real interest rate (2,5)

7. Identify weaknesses in the measure of inflation (2,5)

# Recommended Textbook Resources

### Inflation

The text and chapter covers all the learning objectives.  It outlines examples on different indexes that explain price level changes and their purposes.  It presents a detailed discussion on the consequences of inflation and disinflation and their policy implications.

Principles of Macroeconomics – Chapter 9. Authored by: Timothy Taylor and Steven A. Greenlaw (2016). Provided by: Openstax.

# Supplemental Content/Alternative Resources

### The Fed Explains Inflation

• This short video provides a brief animated explanation of inflation, with a focus on inflation measures, money supply and inflation, and a change in the cost of living and inflation.
• Provided by: The Federal Reserve Bank of Atlanta.

• On the Economy Blog. Authored by:  Silvio Contessi (March 2014). Provided by: International Monetary Fund.

### "Deflation" versus "Lowflation" in the Euro Area

• Authored by: Silvio Contessi.

The above blog post and Youtube video on deflation and lowflation can be used simultaneously.  If offers an international perspective on the Euro area, with applications to Japan, and explains the potential impacts of deflation and lowflation on real debt burden, nominal wage changes, and real interest rate.

# Topic Exercise

Go to: fred.stlouisfed.org, and search for CPI for All Urban Consumers: All Items 1984-2018 or Directly to the following link: https://fred.stlouisfed.org/graph/?g=m5I1

This is a semiannual data series on the Consumer Price Index for All Urban Consumers.  The student may use just the CPI for second half of each year (H2) for this exercise.

Suggested Questions:

1. The average price of a home in QRX City was $220,000 in 2018. Given the CPI (H2) in 2018 and the CPI (H2) in 1990, what is the price of a home in 2018 in terms of 1990 prices? [Answer: (CPI in 1990/CPI in 2018) x$220,000]

2. The minimum wage rate in 1984 was $3.50 an hour. Given the CPI (H2) in 1984 and CPI (H2) in 2016, determine the minimum rate in 2016 that would have restored the worker’s purchasing power (real income). [Answer: (CPI in 2016/CPI 1984) x$3.50]

3. Based on CPI (H2) in 2015, 2016, and 2017, determine the approximate inflation rates in 2016 and 2017.  If you were in the workforce in those years, what increases in annual wages would have expected? Are there reasons why you may not have expected a higher or lower wage increase?  You may support your answers by briefly researching wage increases in different sectors of the economy.

4. If you were a loan officer in 2016 and 2017,how would information about the CPI in 2015, 2016, and 2016 have impacted the loan rates to consumers?  How does CPI information affect real interest rate and nominal interest rate?

# Active Learning Exercise

Go to Bureau of Labor Statistics –Consumer Price Index–Economic Releases–Inflation & Prices–Charts or Directly to the following link: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm

The Economic Releases allow student to explore current economic information reflecting changes in price levels.

Suggested Activities:

Using the pull-down menu explore changes in broad categories of the CPI, and expanded categories of the CPI. View the data as graphs and then as tables. Download the tables, identify the categories with the largest and smallest percentage changes in the past 12 months.  What are some of the potential consequences of this changes for the U.S. economy?

Using the pull-down menu view changes in the CPI in the past 12 months by region and by selected metropolitan areas.  Which regions and metropolitan areas have experienced the largest and smallest percentage changes in the CPI? What are some of the potential consequences of this changes for the economies in the regions or metropolitan areas?

In each case above, request that each students obtain at least one current article from a national or local publication that supports an explanation of changes observed in the BLS data.