In economics, “inflation is a rise in the general level of prices of goods and services in an economy over a period of time”.
The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.
Inflation can cause adverse effects on the economy. For example, uncertainty about future inflation may discourage investment and saving. Fixed nominal payments unadjusted for inflation in the monetary medium of exchange as a result of the implementation of the Historical Cost Accounting model will widen the real salary gap between those with fixed payments for constant real value salaries and those with inflation-adjusted payments for constant real value salaries. High inflation may lead to shortages of goods as consumers begin hoarding them out of concern their prices will increase in the future.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. The consensus view is that a sustained period of inflation is caused when money supply increases faster than the growth in productivity in the economy.
Rate of inflation
The annual percentage change in price level represents rate of inflation.
Rate of inflation = change in price ' 100... [continues]
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