What is inflation

Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole.

Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.

Inflation is too many dollars chasing too few goods.We can also have inflation and deflation by changing the amount of money in the system.Thus inflation is caused by the amount of dollars rising relative to the amount of oranges (goods and services), and deflation is caused by the amount of dollars falling relative to the amount of oranges.

The four major causes of inflation:


1.The supply of money goes up.
2.The supply of other goods goes down.
3.Demand for money goes down.
4.Demand for other goods goes up.