Understanding the reality of inflation can help consumers make decisions in personal finance. Learn more about inflation, how it’s measured, and how the inflation rate is calculated in the December 2021 issue of Page One Economics: Focus on Finance.
Content Standard 1: Earning Income
Grade 4 Benchmarks
2. People earn an income when they are hired by an employer to work at a job.
4. People can earn interest income from letting other people borrow their money.
Grade 8 Benchmarks
9. Interest, dividends, and capital appreciation (gains) are forms of income earned from financial investments.
Grade 12 Benchmarks
6. Changes in economic conditions or the labor market can cause changes in a worker’s income or may cause unemployment.
Content Standard 2: Buying Goods and Services
Grade 4 Benchmark
7. Planning for spending can help people make informed choices. A budget is a plan for spending, saving, and managing income.
Grade 8 Benchmarks
5. A budget includes fixed and variable expenses, as well as income, savings, and taxes.
6. People may revise their budget based on unplanned expenses and changes in income.
Grade 12 Benchmarks
1. Consumer decisions are influenced by the price of a good or service, the price of alternatives, and the consumer’s income as well as his or her preferences.
5. People incur costs and realize benefits when searching for information related to their purchases of goods and services. The amount of information people should gather depends on the benefits and costs of the information.
Content Standard 3: Saving
Grade 4 Benchmarks
3. People can choose to save money in many places—for example, at home in a piggy bank or a commercial bank, credit union, or savings and loan.
6. When people deposit money into a bank (or other financial institution), the bank may pay them interest. Banks attract savings by paying interest. People also deposit money into banks because banks are safe places to keep their savings.
Grade 8 Benchmark
2. For the saver, an interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved.
Grade 12 Benchmarks
2. Inflation reduces the value of money, including savings. The real interest rate expresses the rate of return on savings, taking into account the effect of inflation. The real interest rate is calculated as the nominal interest rate minus the rate of inflation.
3. Real interest rates typically are positive because people expect to be compensated for deferring the use of savings from the present into the future. Higher interest rates increase the rewards for saving.
4. The nominal interest rate tells savers how the dollar value of their savings or investments will grow; the real interest rate tells savers how the purchasing power of their savings or investment will grow.
Content Standard 11: Money and Inflation
Grade 4 Benchmark
5. Inflation is an increase in most prices; deflation is a decrease in most prices.
Grade 8 Benchmark
4. Inflation reduces the value of money.
Grade 12 Benchmarks
3. The consumer price index (CPI) is the most commonly used measure of price-level changes. It can be used to compare the price level in one year with price levels in earlier or later periods.
4. The annual inflation rate is the percentage change in the average prices of goods and services over a twelve-month period.
5. In the long-run, inflation results from increases in a nation’s money supply that exceed increases in its output of goods and services.
Content Standard 12: Interest Rates
Grade 8 Benchmark
1. An interest rate is a price of money that is borrowed or saved.
Grade 12 Benchmarks
1. The real interest rate is the nominal or current market interest rate minus the rate of inflation.
2. Higher real interest rates increase the rewards for saving and make borrowing more expensive.
Content Standard 19: Unemployment and Inflation
Grade 8 Benchmark
2. When people’s incomes increase more slowly than the inflation rate, their purchasing power declines.
Grade 12 Benchmark
6. Unexpected inflation imposes costs on many people and benefits others because it arbitrarily redistributes purchasing power among different groups of people. Unexpected inflation hurts savers and people on fixed incomes; it helps people who have borrowed money at a fixed rate of interest.
