The same jar of 60 coins buys fewer baskets each year.
The big ideaInflation is prices rising over time, so the same coins buy less.
How it works
Inflation is most prices drifting up over time, so the same coins buy less.
To measure it, people price the same basket of goods each year.
Mia's jar of 60 coins never loses a coin, but each coin buys less. That is shrinking buying power.
Real inflation is much slower than the story's, a few coins in a hundred. The story makes it big so it is easy to see.
🍞a loaf🥛milk🧀cheese🍎two apples
Mia's basket: a loaf, milk, cheese and two apples.The basket costs more each year.Why a price creeps up.
Example 1: Pricing the basket
In year one the loaf costs 3 coins, the milk 3, the cheese 2 and the two apples 2.
3 + 3 = 6.
6 + 2 = 8.
8 + 2 = 10.
The whole basket costs 10 coins.
Example 2: What the jar buys
Mia has 60 coins.
In year one a basket costs 10 coins: 60 ÷ 10 = 6 baskets.
In year two it costs 12 coins: 60 ÷ 12 = 5 baskets.
In year three it costs 15 coins: 60 ÷ 15 = 4 baskets.
Example 3: A rise in pay
Mia's pay rises from 60 coins to 75 coins.
A basket costs 15 coins.
75 ÷ 15 = 5 baskets.
With 60 coins she bought only 4, so her buying power held.
Example 4: The same jar, less each year
Six baskets in year one, then five, then four.
6 − 4 = 2 fewer baskets.
The jar kept all 60 coins, and each coin bought less.
Words to know
inflation
Most prices drifting up over time.
basket
The same few goods, priced together.
buying power
What your coins can buy.
price
How many coins something costs.
Watch out
The jar did not lose coins. Each coin bought less.
One shop's sale is not inflation. Inflation is most prices rising.
Prices rise by different amounts. In year two only milk and cheese rose, by a coin each.
Higher pay does not always mean more buying power. Pay has to keep up with prices.
Try it
A basket costs 20 coins. How many baskets do 60 coins buy?
Prices rise but your coins stay the same. Do your coins buy more or less?
In year two milk and cheese each cost 1 coin more than year one's 10-coin basket. What does the basket cost?
Answers: 1. 3 · 2. Less · 3. 12 coins
Try at homeAsk a grown-up what something cost when they were your age, and what it costs now.
For grown-upsThis is a made-up market, and its prices rise far faster than real ones. Ask a grown-up in your family what something cost when they were your age and what it costs now. Real money choices are for grown-ups.
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