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Causes of Inflation
Causes of Inflation
Inflation means that the general level of prices is going up, the opposite of deflation. More money will
need to be paid for goods (like a loaf of bread) and services (like getting a haircut at the hairdresser's).
Economists measure inflation regularly to know an economy's state. Inflation changes the ratio of money
towards goods or services; more money is needed to get the same amount of a good or service, or the same
amount of money will get a lower amount of a good or service. Economists defined certain customer
baskets to be able to measure inflation. There can be positive and negative effects of inflation.
Contents
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1Causes of inflation
o 1.1Demand-Pull inflation
o 1.2Cost-Push inflation
2Costs of inflation
3Other websites
Creditors lose and debtors gain if the lender does not guess inflation
correctly. For those who borrow, this is similar to getting an interest-
free loan.
Uncertainty about what will happen next makes corporations and
consumers less likely to spend. This hurts economic output in the long
run.
People with a fixed income, such as retirees, see a decline in their
purchasing power and, consequently, their standard of living.
The entire economy must absorb repricing costs ("menu costs") as
price lists, labels, menus and so forth have to be updated.
If the inflation rate is greater than in other countries, domestic products
become less competitive.
Nominal interest rate rise because inflation is anticipated.
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This page was last changed on 17 January 2017, at 10:29.
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