Inflation

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Inflation

Meaning:

Inflation is defined as the increase in the prices of goods and services over time, which results in a decrease in the purchasing power of money.

Why Inflation Is Important:

It significantly affects the cost of living, requiring individuals to spend more to maintain their standard of living.

It impacts the returns on savings and investments, as higher inflation can erode real returns.

How to understand Inflation :

Inflation influences salary hikes, as employees may demand higher wages to keep up with rising prices.

It plays a crucial role in determining government economic policies and monetary strategies.

Types of Inflation:

Demand-Pull Inflation:

Caused by increased demand for goods and services.

Cost-Push Inflation:

Results from rising production costs.

Built-In Inflation:

Linked to adaptive expectat i ons of inflation.

Hyperinflation:

Extremely high and typically accelerating inflation.

Deflation:

The opposite of inflation, indicating a decrease in prices.