Inflation And Its Effect On The Economy

1197 Words Feb 22nd, 2016 5 Pages
Introduction
Inflation is an aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, every dollar of income buys fewer goods and services than before and reduces the purchasing power of money. Inflation doesn’t always mean all prices are rising, and during periods of rapid inflation some prices may be constant and others may fall. It is measured by the Consumer Price Index (CPI), the two types are demand-pull and cost-push, and affects the nominal and real interest rates, unanticipated and anticipated inflation, nominal and real interest rates, and hyperinflation.
According to Investopedia, “Finally, inflation is a sign that an economy is growing. In some situations, little inflation can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it’s not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.” (Investopedia).
The historic event known as the Great Recession lasted from December 2007 until June 2009, and the economic damage significantly affected the labor market and the living standards of low-and-moderate income Americans. The shortfall in households’ and businesses’ lack of demand for goods and services was the root of the long-lasting economic damage.
Almost all prices are set by supply and demand, and if the economy experiences inflation, the overall…
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