Lesson 5.03 Consumer Price Index and Inflation

• Introduction
• Learn
• Try It
• Task

Introduction

You've probably heard a senior citizen say, "I can remember when I bought a candy bar for a nickel." This senior citizen is actually acknowledging the presence of inflation in the economy. Inflation is the persistent rise in the general price levels of goods throughout the economy.

• If one item costs more today than it did yesterday, that is not considered inflation.
• If all of the prices on goods and services increase, that is inflation.

That same senior citizen might also say, "A dollar doesn't buy what it used to."

In a healthy economy, some inflation as a function of normal growth is normal. Politicians, businesses and consumers all want an economic system that is predictable. Planning for the future is essential, so knowing how the economy will perform and what inputs or goods and services will cost is equally essential. This lesson will discuss what causes inflation and how the government measures and reports the general price level in the economy.

 

Lesson Objectives Following successful completion of this lesson, students will be able to: define Consumer Price Index (CPI). calculate CPI. describe the consequences of inflation on individuals and nations. The above objectives correspond with the Alabama Course of Study: Economics objectives: 8.4, 9, 9.3.