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Understanding Inflation and Deflation

Inflation refers to a sustained increase in the general price level in an economy, leading to a higher cost of living. It can be categorized into cost-push inflation, driven by rising production costs, and demand-pull inflation, caused by increased aggregate demand. Hyperinflation occurs when inflation exceeds 1000%, while deflation is characterized by a decrease in price levels and a negative inflation rate.

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44 views1 page

Understanding Inflation and Deflation

Inflation refers to a sustained increase in the general price level in an economy, leading to a higher cost of living. It can be categorized into cost-push inflation, driven by rising production costs, and demand-pull inflation, caused by increased aggregate demand. Hyperinflation occurs when inflation exceeds 1000%, while deflation is characterized by a decrease in price levels and a negative inflation rate.

Uploaded by

fairuza192005
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Inflation

Inflation is a situation of rising prices in the economy. A more exact definition of


inflation is a sustained increase in the general price level in an economy. Inflation
means an increase in the cost of living as the price of goods and services rise.
The rate of inflation measures the annual percentage change in the general price
level.
Types of inflation

 Cost-push inflation – when a rise in prices is caused by a rise in the cost of


production, such as higher oil prices
 Demand-pull inflation – when a rise in prices is caused by rising aggregate
demand and firms pushing up prices due to the shortage of goods
Definition Hyper-Inflation

Hyperinflation is generally considered to occur when inflation is greater than


1000%. With hyperinflation, money loses its value so rapidly that nobody wants
to use it as a medium of exchange.

Definition of Deflation

Deflation is a fall in the price level of the economy. It means there will be a
negative inflation rate.

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