ECONOMICS
Learning Contract:
● Raise your hands if you
have any doubts.
● Switch on the camera -
Show your face!
● Enter the room on time
● Chat whenever it is
necessary to raise a
point, avoiding
unnecessary chats
● Make
This document is the property of CS Academy International.
1
the best use of the
Unauthorized copying of this document is prohibited
INFLATION & DEFLATION
BIG QUESTION - Is price
stability a challenge for a
government?
This document is the property of CS Academy International.
2 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Learning Objective -
Define Inflation and
Deflation & Calculate
inflation rate using CPI
This document is the property of CS Academy International.
3 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Starter - Check out these inflation rates!
This document is the property of CS Academy International.
4 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Starter - Check out these inflation rates!
This document is the property of CS Academy International.
5 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Starter - Check out these inflation rates!
Wondering how these inflation rates are calculated??
Any guesses???
This document is the property of CS Academy International.
6 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Let’s define Inflation and
Deflation!
Inflation: A Persistent
rise in the general price
level over a period of time,
in an economy.
Deflation; A persistent
fall in the general price
level, over a period of
time,7 in an economy
This document is the property of CS Academy International.
Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Measurement of Inflation
● Rate of inflation is measured calculating average
price changes in each month/each year
● Difficult to obtain up-to-date price information
on all of the goods and services
● So track the prices of a selection of goods
(basket of goods)
● Basket of goods (normally purchased by a
typical family
● The price information 8 then will be compiled
This document is the property of CS Academy International.
Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
CPI
A consumer price index measures changes in the
price level of a weighted average market basket of
consumer goods and services purchased by
households
This document is the property of CS Academy International.
9 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
How to measure??
● The rate of price inflation in an economy is measured by
calculating the percentage change in the price of all
goods and services, from one point in time to another.
● We often use Retail Price Index or Consumer Price Index
to calculate this %
● Market Basket/Shopping Cart: track the prices of a
selection of goods purchased by a typical family
● Index Numbers: average percentage changes in the
prices of a number of different goods and services by
taking a base year and/or a fixed value for comparison
● Weighting: each commodity is given a weight which is
based on the percentage of household expenditure
devoted to that commodity
This document is the property of CS Academy International.
10 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Method of calculation
● Observe weekly spending patterns of a select
number of households over a year’s time
period
● Give them weights according to their
importance and use
● The price index for each commodity is
multiplied by its weight
● The average price of all the goods and services
should be calculated and given the number 100
to act as a base year
● Then, the next year’s basket should be made
● The weighted average 11 prices should be divided
This document is the property of CS Academy International.
Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Method of calculation
Base Year
Weighted Average
Proportion of
Average Price Price ($)
weekly spending
($) (Proportion as % X
on good (%)
Average Price)
Clothing and
25 40 10
Footwear
Household goods 15 60 9
Food 40 5 2
Travel 20 20 4
Total 100 $25
This document is the property of CS Academy International.
12 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Method of calculation
Current Year
Weighted Average
Proportion of
Average Price Price ($)
weekly spending
($) (Proportion as % X
on good (%)
Average Price)
Clothing and
25 44 11
Footwear
Household goods 10 90 9
Food 50 8 4
Travel 15 20 3
Total 100 $27
This document is the property of CS Academy International.
13 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Method of calculation
CPI = (weighted average price in current
year / weighted average price in base year) X
100
= ( 27/25) X 100
= 108
= 8% inflation
(Refer: https://economicsigcse.wordpress.com/economic-indicators/prices-and-employment-chapter-16/inflation/ )
This document is the property of CS Academy International.
14 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Assessment
Activity 4.19 in the text book (Questions
1,2,3 & 4)
This document is the property of CS Academy International.
15 Unauthorized copying of this document is prohibited
INFLATION AND DEFLATION
Follow-up Activity
Activity 4.19 in the text book (all other
questions)
This document is the property of CS Academy International.
16 Unauthorized copying of this document is prohibited
THANK YOU………...
This document is the property of CS Academy International.
17 Unauthorized copying of this document is prohibited
