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Financial Literacy Club

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Money Fundamentals · Lesson 8

Inflation

Part A. Vocabulary

Define each term in your own words.

Real return

Part B. Guided notes

Fill in each blank using the word bank.

Word bank: faster · Federal · inflation · rising

  1. Inflation = prices = each dollar buys less.
  2. Real return ≈ your return minus .
  3. The Reserve aims for about 2% inflation over the long run.
  4. Long-term money usually needs to grow than inflation.

Part C. Check your understanding

Circle the best answer.

  1. Your savings account pays 1% interest while prices rise 3% this year.

    1. What happened to your money's purchasing power?

    • A. It grew about 1%.
    • B. It fell about 2%.
    • C. It grew about 4%.
    • D. It stayed the same.

  2. You get a 3% raise, but inflation that year is 5%.

    2. In real terms, what happened to your pay?

    • A. It went up about 3%.
    • B. It went up about 8%.
    • C. Nothing changed.
    • D. It went down about 2%.

  3. 3. Keeping a large amount of cash at home for decades protects it from losing value.

    True/False

Part D. Apply it

Show your work.

  1. 1. A $50 item rises with 3% inflation for two years. What does it cost then?

  2. 2. Your savings earn 4% while inflation is 3%. About what is your real return? What if inflation is 5%?

Part E. Think about it

Answer in complete sentences.

  1. 1. Ask a parent or grandparent what something cost when they were your age. How much has it changed?

  2. 2. Who is hurt most by high inflation? Who might not be hurt as much?

Exit ticket

Name

Your pay rises 2%, but prices rise 4%. Did you get a raise? Explain.