For each of the following situations determine what cause of inflation is being described (cost-push or demand-pull) and whether there would likely be inflation or deflation Think about whether the situation is going to affect buyers or sellers first. Then state if prices will likely go up or down.
The federal reserve lowers interest rates to 1% (consumers have access to more money)
The US Treasury prints off $10 million extra as a stimulus package for citizens to aid in the recession recovery.
America enters a recession, investment and spending both drop dramatically. There is an increase in unemployment and poverty as reported by the Bureau of Labor and Statistics.
The government has new mandatory environmental regulations and standards for all business.
Congress raises the minimum wage to $23 an hour
The government puts a tariff on serveral raw materials including rubber, steel, leather, oil, and aluminum.
The measurement the government uses to measure inflation. Often reffered to saying it is a "Market Basket" of goods. (check your notes if you don't know)
Consumer Price Index
Congress increases taxes to 50% of income.
Due to increased demand for business and retail space, the price of building rentals skyrockets.
In 2008, Milk= $3.46, Tires= $400, Haircut=$15, Movie ticket=$8, Gallon of gas=$1.87, stamp=$.44, TV=$1000. What is the value of this market basket?
In 1975, Milk=$1.48, Tires=$245, Haircut=$5, Movie Ticket=$2, Gallon of gas =$2.00, stamp=$.18, TV=$400. What is the value of this market basket?
Compare your answers between 10 and 11. What might explain this difference in value.