Vocabulary
Define "Inflation".
The rate at which prices increase over a certain period (usually a year), which tells us how much more expensive a “basket” of goods and services becomes.
In 2008, people in this country needed bags of cash just to buy basic items like bread.
Zimbabwe
If wages rise at the same rate as inflation, purchasing power remains constant.
True
A worker gets a 2% raise, but inflation is 5%.
Are they better off, worse off, or the same?
Worse off, because prices are rising faster than income.
Food prices are expected to rise in what year?
2026
What does GDP stand for?
Gross Domestic Product
What was the highest denomination banknote that Zimbabwe used?
$100 trillion note.
If inflation is 20% and the CPI rises to 240, then the CPI the year before was 220.
False
What happens to your purchasing power?
It decreases.
Dalhousie, UBC, and USask create an annual report of food prices called what?
What does CPI stand for?
Consumer Price Index
The period of time (1990s) where Japan extremely stagnant economic growth was called...
The Lost Decade.
Moderate inflation can help the economy by reducing the risk of deflation and easing debt repayment.
True
What annual percentage rate do most developed nations' central banks target for inflation to ensure price stability and avoid deflation?
2%
How much more will the typical family of four spend of groceries in 2026?
$994.63
Define "Purchasing Power".
The financial ability of someone to buy products and services.
What decision did the Zimbabwean government make regarding their national currency after it became nearly worthless?
The Zimbabwean dollar was abandoned, and the country adopted the US dollar and other foreign currencies as legal tender.
Core inflation includes food and gas because they are essential to daily life.
False
(Core inflation removes volatile items like food and gas)
What is a menu cost?
The literal cost of constantly changing prices (restaurants reprinting menus, stores updating labels).
What is the Bank of Canada's target inflation rate?
2%
What is "Built-In Inflation"?
People expect prices to rise, so workers demand higher wages to keep up with the cost of living. Businesses then raise prices to cover higher wages, which leads workers to demand even higher pay. This wage–price spiral keeps inflation going.
Japan in the 1990s experienced falling prices instead of rising ones, causing people to delay spending. What is this economic situation called, and why is it harmful?
Deflation, it reduces spending and slows economic growth.
The CPI basket includes military spending and other government expenditures.
False
What is the main monetary policy tool used by central banks to combat rising inflation?
Interest rates.
What are some of the reasons for the rising food costs?
Climate change, smaller cattle herds, increased chicken demand, trade pressures, supply chain upgrades.