What causes inflation?
This lesson printed from:
Posted January 12, 2006
Author: Tim Florian
Posted: January 12, 2006
Updated: May 14, 2008
This lesson explores different types of inflation and terms associated with this economic concept. You may have heard relatives talk about the good old days when a dollar would buy something. What happened to that dollar? Why won’t it buy as much as it did last month or last year? What happened is inflation. In this lesson you will examine the various causes and theories of inflation as well as how it affects different groups in the economy such as savers, lender, and people living on fixed incomes.
- Identify the main theories of inflation
- Understand main terms associated with inflation
- Compare different theories of inflation
This lesson will explore types of inflation and terms associated with this economic concept. You may have heard relatives talk about the good old days when a dollar would buy something. What happened to that dollar? Why won't it buy as much as it did last month or last year? What happened is inflation. In this lesson we will examine the various causes and theories of inflation as well as who is responsible for tracking it.
You may want to use the lessons below before starting this lesson. They will provide students with proper background information on inflation and the CPI.
Use the Causes of Inflation Slide show presentation to introduce the various causes of inflation.
To complete Study Guide #2, the students will need to visit these Web sites:
- Part #1: What Goods and Services Does the CPI Cover?
- Part #2: Theory 1: Demand-Pull Inflation - is Inflation Demanding?
- Part #3: Theory 2: Cost-Push Inflation - Is Inflation Pushy?
- Part #4: Theory 3: Quantity Theory of Money - In Theory What Quantity Would You Like?
Inflation has remained in check for much of the past three decades. As a result, prices of goods and services have remained relatively steady. However, we must be on the lookout for factors that can lead to periods of high inflation. Prices of goods and services will rise. The rise may be caused by demand exceeding supply, or because the cost of making goods and services rises and that cost gets passed on to the consumer, or because it may be that there is too much money in the economy. Whatever the reason, or combination of reasons, we can expect some inflation in our economy.
Assign the students to write an essay comparing and contrasting the causes of inflation. In their essays, the students should use the information they used to complete the process section.
Answers will vary:
Students should provide an analysis of the various types of inflation and theories behind them.