Unemployment: Inflation P2 P3

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|[pic][pic]Current Location: Types of Inflation | |[ Top ] : [ Inflation ] : Types of Inflation | |[pic] |Definition | | |Inflation is an increase in the general level of prices over a stated period of time, usually a year, | | |expressed as a percentage. When prices on average go up, that's inflation. The fundamental cause of ongoing | | |inflation is too much money chasing too few goods. Inflation usually happens when the economy is too buoyant,| | |so that shortages of labour and materials become widespread, and prices in general rise. Then money starts | | |losing its value. Typically an inflation-linked boom is followed by a bust. | | | | | |If prices rise faster than incomes, then people are worse off. As well, if interest paid on savings is less | | |than inflation, then the interest is inadequate to compensate people for the fact that the value of their | | |savings is being eaten away. | | | | | |Inflation also does long-term damage to the economy. When money doesn't hold its value, businesses and | | |investors have more difficulty making contracts, especially where contracts have to last over time, eg | | |employment contracts and borrowing....
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