Online Lesson

What causes inflation?

Introduction:

In this lesson you will look at 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 various causes and theories of inflation as well as who is responsible for tracking it.

Task:

You will use a PowerPoint presentation to learn about the different types of inflation and how they affect your ability to buy goods and services. Also, you will learn about terms associated with inflation, groups affected by inflation, and who tracks changes in the prices of what we buy.

Process:

Use this power point presentation as your guide guide for making your way through this lesson on the various causes of inflation.

Next, print out copies of two different study guides: Study Guide #1 and Study Guide #2.

To complete study guide #1 you will need to read this Web site:
www.socialstudiesforkids.com/articles/economics/inflation1.htm .

To complete study guide #2 you will need to read these Web sites:

Part #1: www.bls.gov/cpi/cpifaq.htm#Question_7 .

Part #2: www.bized.co.uk/virtual/bank/economics/mpol/inflation/causes/theories1.htm .

Part #3: www.bized.co.uk/virtual/bank/economics/mpol/inflation/causes/theories2.htm .

Part #4: www.bized.co.uk/virtual/bank/economics/mpol/inflation/causes/theories3.htm .

Conclusion:

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 there is too much money in the economy. Whatever the reason, or combination of reasons, we can expect some inflation in our economy.

Assessment Activity:

Online Assessment Activity

1. According to the Quantity Theory:
   a. Inflation occurs because there is not enough money in the economy.
   b. Inflation occurs because demand exceeds supply for goods and services.
   c. Inflation occurs because there is too much money in the economy. [CORRECT]
2. The cost-push theory of inflation states that:
   a. Inflation occurs because there is not enough money in the economy.
   b. Inflation occurs because the costs of producing goods and services go up and are then passed along to the consumer. [CORRECT]
   c. Inflation occurs because there is too much money in the economy.
3. Which of the following best describes the demand-pull theory of inflation?
   a. Inflation occurs because there is not enough money in the economy. [CORRECT]
   b. Inflation occurs because the costs of producing goods and services go up and are then passed along to the consumer.
   c. Inflation occurs because there is too much money in the economy.
4. Purchasing power describes what happens to our ability to buy goods and services when prices...
   a. fall due to inflation.
   b. rise due to inflation. [CORRECT]
   c. rise due to deflation.
5. True or False? The market basket is a combination of goods and services that the BLS uses to track changes in the general price level. These are items that an average family will spend money on in a given month.
   a. True [CORRECT]
   b. False

Extension Activity:

Write an essay, comparing and contrasting the causes of inflation. In planning your essay, use the Web sites you used to complete your study guides.