Question Questions On Inflation

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Recommended: The price of goods and services

Questions:
1. What is inflation?
Inflation occurs when the prices of goods and services increase over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services.
What are the causes of inflation?
Economists distinguish between two types of inflation: Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy. Demand-pull inflation occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy’s productive capacity. One potential shock to aggregate demand might come from a central bank that rapidly increases the supply of money.
Is inflation desirable and what can be done to control inflation in a market economy?
Tie the creation of money to the creation of Stuff. Reduce the government’s spending to stop new money from entering the system. Sell bonds to remove money from the system (how do you get people to sell their money for bonds? Raise interest rates!). Or make it more expensive for Banks to borrow mo...

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