understanding inflation, deflation, cpi and price stability
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- Glisser: 1
- Hello class! welcome to AP Economics. Today we will go on a field trip to learn about the things that shape the prices of everyday items.
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- Because it is almost Halloween and everyone is dying for some halloween candy, there is a higher demand than supply. This causes prices to go up.
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- Months ago the prices for candy at this store was $0.50 but now it is $2.50. This is inflation. Inflation happens when the price of goods and services increases over time. This means you have less purchasing power and your money can buy less than it used to.
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- Notice how this lady is angry. it is because prices increased. Inflation makes items more expensive and the value of your money will shrink
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- Now we see the price of fruits falling from $2.50 to $0.50. This is called deflation. Deflation is when prices fall over time.
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- This is because it is around halloween time and people want more candy and less healthy fruits. The demand for fruits decreases which causes the lowering of prices, so it can attract buyers
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- As you can see this store owner is crying. Deflation might seem like a good thing but it can hurt the economy by reducing profits for businesses.
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- Here we are at the Bureau of Labor Statistics. This is where CPI is calculated. The CPI tracks changes in the price of everyday goods and services. It is used to measure inflation.
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- As you can see, people are happily shopping and smiling because of the stable prices. Price stability is vital because it helps businesses make decisions, encourages consumer spending, and promotes economic growth
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- We are back class. Now you know about Price deflation, inflation, price stability, and CPI and its effects on everyday life and the economy.
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