Definition: A sustained increase in the general price level of goods and services over time, reducing purchasing power.
Inflation means money buys less over time. Moderate inflation (2-3%) is considered healthy for economies. High inflation disrupts planning and savings. Causes include demand-pull (too much spending), cost-push (rising production costs), and monetary expansion. Central banks target stable, low inflation through interest rate policy.
If inflation is 5%, a $100 grocery basket costs $105 next year. Over 20 years at 3% inflation, prices roughly double. The 1970s saw double-digit inflation that eroded savings and caused economic chaos.
Inflation is a core AP Macro topic. You
Category: Macroeconomics