Facing the Fact of Increasing Prices: Inflation
IN THIS CHAPTER
Understanding how economists calculate inflation
Seeing why printing more money causes inflation
Recognizing that inflation can be a curse and a blessing
Experiencing the extreme poles of hyperinflation and deflation
Grandparents and other baby boomers often talk about the good old days. And it’s true, a lot of things were a lot cheaper. In the early 1950s, it cost less than $0.50 to see a first-run film. Now it may cost $10 or more. Similarly, a McDonald’s hamburger cost $0.15 in 1955, compared with $1.35 today (your local price may vary). A gallon of gasoline was under $0.25 in the 1950s, and the price of the average new house was $22,000. For these, as for virtually all other goods, the last 60 years has seen prices rise by ten-fold or more.
Yet why the prices of things tend to rise over time isn’t at all obvious. Why can’t prices fall or even stay roughly constant? In modern times, what about prices causes them to go up over time in almost all countries? These questions are just some of the ones that macroeconomists attempt to answer.