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fortunately very rare. In fact, most examples of hyperinflation have occurred when
the government printed money recklessly to pay for war. Examples of hyperinflation
include Germany in the 1920s, Zimbabwe in the 2000s, and during the American
Civil War.

Disinflation - reduction in the rate of inflation.
Deflation - a sustained decrease in the price level.

The most commonly cited measure of inflation is the Consumer Price Index
(CPI). The CPI is calculated by government statisticians based on the prices in a fixed
basket of goods and services that represents the purchases of the average family:
Current Cost of the basket
CPI   100
Base Year Cost of basket . (6.2)
The CPI is computed through a four-step process:
1) the fixed basket of goods and services is defined. This requires figuring out
where the typical consumer spends his or her money. The Bureau of Labor Statistics
surveys consumers to gather this information;
2) the prices for every item in the fixed basket are found. Since the same
basket of goods and services is used across a number of time periods to determine
changes in the CPI, the price for every item in the fixed basket must be found for
every point in time;
3) the cost of the fixed basket of goods and services must be calculated for
each time period. Like computing GDP, the cost of the fixed basket of goods and
services is found by multiplying the quantity of each item times its price;
4) a base year is chosen and the index is computed. The price of the fixed
basket of goods and services for each comparison year is then divided by the price of
the fixed basket of goods in the base year. The result is multiplied by 100 to give the
relative level of the cost of living between the base year and the comparison years.

ASSIGNMENTS

Choose the correct answer.
1 When the general level of prices is rising, we call that:
a) inflation;
b) deflation;
c) elevation;
d) none of the above.

2 When prices rise slowly and predictably, we call that:
a) low inflation;
b) galloping inflation;
c) hyperinflation;
d) deflation.

3 When inflation is in the double or triple digits, we call that:
a) galloping inflation;

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