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. |
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| |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. |
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| |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