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Wednesday, July 14, 2010
I just finished going through comments where a so-called "Master Po" argued against TIPS and in favor of gold. Parts of his argument were flat out wrong, and commenters let him know. Hopefully today ol' Master Po is considerably wiser.
In any event, there was some commentary on inflation and deflation, and since I cover this with my Econ 101 students each semester, I thought it was worth a post.
In fact we go over all the "flation" words used in economics: inflation, deflation, disinflation, hyperinflation and stagflation. Whew! I think that's all of them. If anyone knows of another one, please let me know.
The two that get most confused are deflation (overall price level is actually dropping into negative territory- ex. CPI down 2% year to date) and disinflation ( overall price level is increasing but at a decreasing rate - going from +3% rise to a +2% rise).
2 Quiz Questions
1. Has the U.S. ever experienced hyperinflation?
2. When did the U.S. experience stagflation?
EXTRA CREDIT ESSAY: Is deflation good or bad for the country? Who is helped and who is hurt?