Introduction to inflation | Inflation - measuring the cost of living | Macroeconomics | Khan Academy

00:07:32
https://www.youtube.com/watch?v=AaR1mPrdbTc

Resumen

TLDREconomists today refer to inflation as a general increase in the prices of goods and services, or price inflation. Historically, the term referred to monetary inflation, or an increase in the money supply, but the two are not always the same. Inflation is typically measured using the Consumer Price Index (CPI) in the U.S., specifically the CPI-U for urban consumers. Factors like supply shocks can also contribute to price inflation. A moderate inflation rate of about 1% to 3% is considered beneficial, but anything higher can be risky, leading to situations like hyperinflation. Conversely, negative inflation, known as deflation, can have dangerous economic consequences.

Para llevar

  • 📈 Inflation today usually refers to price inflation, not monetary inflation.
  • 💰 Monetary supply growth and price inflation are linked but not identical.
  • 🚨 Supply shocks can also cause price inflation independently of money supply.
  • 🇺🇸 In the U.S., inflation is typically measured by the Consumer Price Index (CPI).
  • 🏙️ CPI-U is the most commonly reported CPI, representing urban consumers.
  • 🍌 A basket of goods from a base year calculates CPI adjustments.
  • 🔍 Mild inflation (1-3% per year) is considered beneficial.
  • 🤯 High inflation can escalate to hyperinflation; deflation is also risky.
  • 🛢️ Supply shocks, like those with oil, can drastically affect prices.
  • 🧺 CPI takes into account expenditure on essentials like apples and bananas.

Cronología

  • 00:00:00 - 00:07:32

    Economists today refer to inflation as a general increase in prices of goods and services, known as price inflation, differentiating it from monetary inflation, which relates to growth in the money supply. Although they are interconnected, they aren't necessarily equivalent. Typically, if the money supply exceeds the economy's real productivity, price levels rise. However, other factors like supply shocks, particularly in oil, can also cause short-term price increases. A manageable inflation rate is about 1-3% per year; anything higher is concerning, as is deflation. Inflation in the U.S. is measured using the Consumer Price Index (CPI), specifically the CPI-U, covering urban consumers. This index helps track changes in consumer spending on a 'basket of goods' over time, using weighted averages of goods' price changes to calculate inflation. In a simplified example, an increase from a base index of 100 to 162 indicates a 62% growth in prices, calculated by weighted averages of price indices for apples and bananas. Future discussions will explore hyperinflation and deflation in detail.

Mapa mental

Mind Map

Preguntas frecuentes

  • What is contemporary inflation referring to?

    Contemporary inflation refers to a general increase in the price level of goods and services, known as price inflation.

  • How was the term 'inflation' originally used?

    The term originally referred to monetary inflation, or an increase in the money supply.

  • What can cause price inflation besides money supply growth?

    Price inflation can be caused by factors such as supply shocks, like the oil crises of the 1970s.

  • What is a supply shock?

    A supply shock occurs when the supply of a product suddenly becomes scarce, leading to an increase in prices.

  • How is inflation measured in the United States?

    Inflation in the United States is measured by the Consumer Price Index (CPI), specifically the CPI-U for urban consumers.

  • Why is CPI-U significant?

    CPI-U is the headline number because it affects the largest number of urban consumers in the U.S.

  • How is the CPI calculated?

    CPI is calculated by taking a basket of goods for a base year and measuring the price change of these goods over time.

  • What effect can inflation have if it becomes too high or negative?

    High inflation can become uncontrollable, leading to issues like hyperinflation, while negative inflation (deflation) can also be problematic.

  • What percentage of inflation is considered normal and manageable?

    A manageable level of inflation is considered to be between 1% to 3% per year.

  • What role do supply and demand play in price changes besides money supply?

    Supply shocks and other changes in supply and demand can affect prices independently of changes in the money supply.

Ver más resúmenes de vídeos

Obtén acceso instantáneo a resúmenes gratuitos de vídeos de YouTube gracias a la IA.
Subtítulos
en
Desplazamiento automático:
  • 00:00:00
    When economists refer to inflation today,
  • 00:00:03
    they are referring to a general increase
  • 00:00:06
    in the level of prices of goods and services.
  • 00:00:09
    So they're really talking about price inflation.
  • 00:00:12
    The reason why I stress that is because sometimes,
  • 00:00:15
    or especially when the term inflation first
  • 00:00:18
    came into usage, it actually was referring to monetary inflation
  • 00:00:22
    or an increase in the money supply.
  • 00:00:25
    So it was referring to an increase in the money supply.
  • 00:00:28
    These two ideas are closely related,
  • 00:00:31
    but it's important to realize that people really
  • 00:00:33
    are measuring inflation.
  • 00:00:34
    When they're talking about inflation today,
  • 00:00:36
    they're talking about price inflation.
  • 00:00:38
    Because although these two things are related,
  • 00:00:39
    they aren't always exactly the same thing.
  • 00:00:43
    It is generally true that if the money supply-- and the money
  • 00:00:46
    supply is more than just the amount
  • 00:00:49
    of dollars that are printed.
  • 00:00:50
    It's the amount of dollars that are printed.
  • 00:00:52
    It's affected by the amount of lending that's occurring.
  • 00:00:54
    It's affected by the number of transactions
  • 00:00:56
    that are occurring in the economy.
  • 00:00:57
    And if that money supply that's affected by all of those things
  • 00:01:00
    grows faster than the total real productivity of the economy,
  • 00:01:05
    then it will generally increase the level of prices.
  • 00:01:09
    But especially in the short term,
  • 00:01:10
    there could be other causes of price inflation.
  • 00:01:12
    You could have things like supply shocks.
  • 00:01:15
    And a supply shock is the supply of something
  • 00:01:19
    becomes scarce all of the sudden.
  • 00:01:20
    And the most typical example of a supply shock
  • 00:01:22
    is especially in the oil crises in the 1970s.
  • 00:01:27
    If for whatever reason oil becomes
  • 00:01:28
    scarce in a country like the United States,
  • 00:01:31
    then the price of oil and gas would go up.
  • 00:01:35
    But then these are inputs into a whole set of things, even
  • 00:01:38
    that banana that you buy at the grocery store.
  • 00:01:40
    If the price of oil or gas-- or both
  • 00:01:43
    of them, frankly-- or the price of oil were to shoot up,
  • 00:01:45
    even the price of your banana would shoot up.
  • 00:01:47
    Because to get that banana to your store,
  • 00:01:50
    you need to use some gasoline.
  • 00:01:51
    In fact, a significant fraction of that banana in that store
  • 00:01:55
    was probably the cost of the gasoline for that ship
  • 00:01:58
    to take that banana from wherever
  • 00:02:00
    it was grown to your grocery store and then on a railroad
  • 00:02:03
    and then on a truck or whatever.
  • 00:02:05
    So this would affect the general prices, not just
  • 00:02:08
    the prices of oil or gas.
  • 00:02:10
    So these two things are related, but it's
  • 00:02:11
    important to realize that people are
  • 00:02:13
    referring to price inflation.
  • 00:02:16
    And the general consensus is a little bit of it
  • 00:02:19
    is a good thing.
  • 00:02:24
    And I want to stress, little is good.
  • 00:02:27
    And we're talking 1, 2.
  • 00:02:29
    Maybe 3% per year.
  • 00:02:32
    But anything larger than that gets a little scary
  • 00:02:34
    because it can kind of snowball on itself.
  • 00:02:36
    And we'll talk about that in future videos
  • 00:02:38
    when we talk about hyperinflation.
  • 00:02:40
    And economists are also afraid if inflation
  • 00:02:42
    were to ever get negative.
  • 00:02:43
    That leads to deflation, and we'll talk in future videos
  • 00:02:46
    why in many circles that is viewed as a scary thing.
  • 00:02:51
    Now in the United States, inflation
  • 00:02:54
    is measured with the Consumer Price Index, CPI.
  • 00:02:58
    And you'll always hear this reported in the news,
  • 00:03:01
    especially if you watch some of the business programming.
  • 00:03:04
    And there are actually multiple consumer price indices.
  • 00:03:08
    The one that people report whenever
  • 00:03:09
    they say the CPI went up 2%, they are actually
  • 00:03:14
    referring to the CPI-U. And the U here
  • 00:03:19
    stands for Urban consumers.
  • 00:03:22
    And the reason why this is the headline CPI,
  • 00:03:25
    or the one that people actually report,
  • 00:03:27
    is because most of the country in the United States,
  • 00:03:31
    they are urban consumers.
  • 00:03:32
    So this is the CPI that affects the largest
  • 00:03:35
    number of people's pocketbooks.
  • 00:03:37
    And the way that it's calculated is, it's like the deflator.
  • 00:03:41
    It's a price index.
  • 00:03:43
    And it's measuring a general increase or a general change
  • 00:03:47
    in the level of prices.
  • 00:03:48
    But they actually are calculated in slightly different ways,
  • 00:03:50
    although they should come into agreement
  • 00:03:53
    or they should be close to each other
  • 00:03:55
    if they really are indices from measuring
  • 00:03:57
    the general level of prices.
  • 00:03:59
    But the way that the CPI works is
  • 00:04:01
    that they take a basket of goods for this type of consumer
  • 00:04:04
    in a base year.
  • 00:04:06
    So they'll pick up base year.
  • 00:04:08
    And let's take a super simple example, a ridiculously simple
  • 00:04:10
    example.
  • 00:04:11
    Let's say in our little country, the urban consumers--
  • 00:04:16
    we'll focus on CPI-U-- only consumes two things.
  • 00:04:19
    In the next video, we'll see that in reality, we
  • 00:04:21
    consume many more than two things.
  • 00:04:23
    But the two things-- and they spend
  • 00:04:24
    60% of their money on apples, and they
  • 00:04:28
    spent 40% of their money on bananas.
  • 00:04:33
    And in that base year, we just set that base price of apples
  • 00:04:36
    at 100, and bananas are 100.
  • 00:04:39
    Now we're not saying that apples and bananas
  • 00:04:41
    cost the same thing.
  • 00:04:42
    We're saying that we're spending 60% of our money
  • 00:04:44
    on apples, 40% on bananas in that base year,
  • 00:04:47
    and that this is just that base year level of prices.
  • 00:04:51
    What will matter is how much this grew.
  • 00:04:53
    What will this index change as we go to whatever year
  • 00:04:56
    we want to calculate the inflation
  • 00:04:57
    in relative to this base year.
  • 00:05:00
    So let's say in our current year--
  • 00:05:01
    could be the very next year-- so let's say in our current year
  • 00:05:06
    and we're going to assume these the same rates,
  • 00:05:08
    that we're still spending 60% on apples and 40% on bananas.
  • 00:05:12
    In our current year, the apple index--
  • 00:05:14
    let's say that it has grown 50% percent to 150.
  • 00:05:19
    So it is plus 50%.
  • 00:05:22
    And let's say that the banana index has grown to 180.
  • 00:05:25
    So bananas have gotten even more expensive-- plus 80%.
  • 00:05:29
    So how would we measure?
  • 00:05:31
    How much would we say the CPI-U has grown?
  • 00:05:34
    Well, we would take a weighted average of these indices,
  • 00:05:37
    or you could say a weighted average of the growth.
  • 00:05:39
    And you could do it either way.
  • 00:05:41
    So let's do it either way to get you the same result.
  • 00:05:44
    So in this year, our base index is 0.6 times 100 plus 0.4 times
  • 00:05:52
    100, and this will just come out to 100.
  • 00:05:56
    This is 60 plus 40.
  • 00:05:57
    This is equal to 100 as it should.
  • 00:05:59
    That is our base year.
  • 00:06:00
    That is our base for our index.
  • 00:06:03
    Now over here in our current year,
  • 00:06:06
    so this is what we're transitioning to,
  • 00:06:08
    there's a couple of ways to do it.
  • 00:06:09
    You could say, look, we're spending 60% on something
  • 00:06:11
    that has gone up to 150 now.
  • 00:06:14
    So we would say 0.6 times 150.
  • 00:06:20
    And then we'll say plus 0.4 times 180.
  • 00:06:26
    And that gets us to-- let me get my calculator out--
  • 00:06:29
    so this gets us 0.6 times 150 plus 0.4 times 180.
  • 00:06:40
    So that gets us to 162.
  • 00:06:45
    So our general-- if you look at this basket and this
  • 00:06:47
    is an overly simplified basket-- we've
  • 00:06:51
    increased from 100 to 162.
  • 00:06:55
    Or you could say this is plus 62%.
  • 00:06:58
    And you would have gotten the same result
  • 00:06:59
    if you took the weighted average of the percentages.
  • 00:07:02
    If you took 0.6 times 50% plus 0.4 times 80%-- in fact
  • 00:07:06
    we could do that in our head.
  • 00:07:07
    0.6 times 50% is going to be 30%.
  • 00:07:10
    And then 0.4 times 80% is going to be 32%.
  • 00:07:13
    to 30 plus 32 gives us 62% growth
  • 00:07:17
    for this basket of goods, which we are assuming
  • 00:07:19
    is I guess for this urban consumer,
  • 00:07:21
    from our base year to the current year.
  • 00:07:23
    Now in the next video, we'll actually
  • 00:07:24
    look at what the basket of goods actually
  • 00:07:26
    looks like in the United States for an actual urban consumer.
Etiquetas
  • inflation
  • price inflation
  • monetary inflation
  • CPI
  • supply shocks
  • oil crises
  • hyperinflation
  • deflation
  • economics
  • money supply