📚 Topic Summary
Inflation, deflation, and disinflation all relate to the general price level of goods and services in an economy. Inflation is a sustained increase in the general price level, meaning your money buys less than it used to. Deflation is the opposite – a sustained decrease in the general price level, meaning your money buys more. Disinflation is a decrease in the rate of inflation; prices are still rising, but not as quickly as before. Think of it like driving: inflation is accelerating, deflation is driving in reverse, and disinflation is slowing down.
🧠 Part A: Vocabulary
Match the following terms with their definitions:
- Terms: Inflation, Deflation, Disinflation, Consumer Price Index (CPI), Purchasing Power
- Definitions:
- A decrease in the rate of inflation.
- A sustained increase in the general price level of goods and services.
- The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.
- A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
- A sustained decrease in the general price level of goods and services.
Write your answers here:
1. Inflation: ____
2. Deflation: ____
3. Disinflation: ____
4. Consumer Price Index (CPI): ____
5. Purchasing Power: ____
📊 Part B: Fill in the Blanks
Complete the following paragraph using the words: increase, decrease, inflation, deflation, disinflation, CPI.
The ______ is a key measure used to track changes in the average price level. When the CPI shows a consistent ______ over time, it indicates ______. This means the purchasing power of money is experiencing a ______. If the rate of price increases slows down, this is called ______. Finally, if the CPI consistently falls, we are in a period of ______.
🤔 Part C: Critical Thinking
Explain how unexpected inflation can benefit borrowers but harm lenders. Use real-world examples to illustrate your answer.