Economics explained
Category:
Inflation and deflation
Inflation
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Inflation is the name given to an increase in price levels generally. It is also manifest in the decline in the purchasing power of money
Inflation does not mean that the price of every good and service increases, but that on average the prices are rising.
Inflation reduces the value of money
Governments aim to control inflation because it reduces the value of money and the spending power of households, governments and firms.
Creeping inflation
A low and stable rate, of for instance 2%, is generally regarded not to be a problem. Indeed, seeing a low and steady rise in prices may encourage firms to produce more. Such a rate of inflation is sometimes known as creeping inflation.
Hyperinflation.
Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. This is often taken to be an inflation rate that exceeds 50%
Nominal prices
Nominal prices are simply money prices, which can change over time due to inflation
Real prices
In contrast, real prices have been adjusted for inflation.