Question

watch inflation and bubbles and tulips: crash course economics #7 https://www.youtube.com/watch?v=t8 - 85czr19o&t=9s
the consumer price index shows how __ have changed between different years, and its by far the most commonly used measure of __.
real means____
nominal means____
demand pull inflation is when too much money ____
inflation can also be caused by the decrease in the availability of an important resource like oil. an increase in the price of a resource would increase the cost of producing goods. economists call this a __ and it causes __ inflation.
read chapter 15 inflation in the everything economics book

1. explain the following economic terms

a. demand - pull inflation
b. hyperinflation
c. cost - push inflation
d. stagflation

1. who benefits from inflation? explain why!
2. who loses because of inflation? explain why!
3. what kind of practical problems does inflation create?
4. how does disinflation benefit the economy?
5. how do inflationary expectations actually create inflation?
6. why is deflation harmful to the economy?

Explanation:

1.
a. Demand - pull inflation occurs when aggregate demand in an economy outpaces aggregate supply, causing prices to rise.
b. Hyperinflation is extremely high and typically accelerating inflation, often leading to the collapse of a country's monetary system.
c. Cost - push inflation is when the cost of production inputs (like raw materials) increases, pushing up prices.
d. Stagflation is a situation where an economy experiences high inflation and high unemployment simultaneously.

1. Debtors may benefit from inflation as they can pay back debts with money that has decreased in value. For example, if a person borrowed $100 when prices were low and inflation occurs, the real value of that $100 has decreased when they pay it back.
2. Creditors lose from inflation because the money they are repaid has less purchasing power. Savers also lose as the value of their savings erodes with rising prices.
3. Practical problems of inflation include menu costs (the cost of changing prices), shoe - leather costs (the cost of more frequent trips to the bank to manage money), and uncertainty in long - term planning.
4. Disinflation, a decrease in the inflation rate, can benefit the economy by reducing uncertainty, making long - term planning easier, and potentially stabilizing financial markets.
5. Inflationary expectations can create inflation as workers may demand higher wages expecting prices to rise, and firms may raise prices anticipating higher costs, leading to a self - fulfilling prophecy of inflation.
6. Deflation is harmful as it can lead to a downward spiral in the economy. Consumers may delay purchases expecting prices to fall further, reducing demand. Firms may cut production and jobs, leading to higher unemployment and further deflationary pressure.

Answer:

1.
a. Demand - pull inflation: Occurs when aggregate demand exceeds aggregate supply, driving up prices.
b. Hyperinflation: Extremely high and accelerating inflation, often causing monetary system collapse.
c. Cost - push inflation: Caused by rising production input costs, pushing up prices.
d. Stagflation: High inflation and high unemployment existing simultaneously.

1. Debtors. They can repay debts with less valuable money.
2. Creditors and savers. Creditors get repaid with less - valuable money, and savers' savings lose value.
3. Menu costs, shoe - leather costs, and uncertainty in long - term planning.
4. Reduces uncertainty, eases long - term planning, and stabilizes financial markets.
5. Workers demand higher wages and firms raise prices due to expectations, creating a self - fulfilling inflation cycle.
6. Can lead to a downward economic spiral as consumers delay purchases, firms cut production and jobs.