INFLATION What is inflation In economics inflation is

INFLATION

What is inflation ? � In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation.

Inflation rates around the world in 2013, per International Monetary Fund

� Rapid increases in quantity of the money or in the overall money supply (or debasement of the means of exchange) have occurred in many different societies throughout history, changing with different forms of money used

Monetarists � Monetarists assert that the empirical study of monetary history shows that inflation has always been a monetary phenomenon. The quantity theory of money, simply stated, says that any change in the amount of money in a system will change the price level. This theory begins with the equation of exchange: � MV=PQ where : � M is the nominal quantity of money � V is the velocity of money in final expenditures � P is the general price level � Q is an index of the real value of final expenditures;