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Inflation is the rate at which prices for goods and services rise, impacting purchasing power and economic stability. It can be caused by demand-pull or cost-push factors, and while moderate inflation can stimulate growth, excessive inflation can harm savings and create uncertainty. Governments monitor inflation through indices like the CPI and aim for a stable rate, typically around 2% per year.

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VILLAMIA,JAN CYRILL T.
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20 views1 page

Untitled Document 1

Inflation is the rate at which prices for goods and services rise, impacting purchasing power and economic stability. It can be caused by demand-pull or cost-push factors, and while moderate inflation can stimulate growth, excessive inflation can harm savings and create uncertainty. Governments monitor inflation through indices like the CPI and aim for a stable rate, typically around 2% per year.

Uploaded by

VILLAMIA,JAN CYRILL T.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

📘 Essay: Understanding Inflation and Its Impact on the Economy

Inflation is the rate at which the general level of prices for goods and services rises over a
period of time. It reduces the purchasing power of money, meaning that over time, each unit of
currency buys fewer goods and services. While a moderate level of inflation is normal in a
growing economy, excessive or unpredictable inflation can lead to serious economic problems.

One of the main causes of inflation is demand-pull inflation, which occurs when consumer
demand exceeds supply. This drives prices upward. Another cause is cost-push inflation, where
the cost of production increases (such as wages or raw materials), and businesses pass these
costs on to consumers in the form of higher prices. Additionally, monetary inflation can occur
when too much money is circulating in the economy due to loose monetary policies.

Inflation has both positive and negative effects. On one hand, mild inflation can encourage
spending and investment, which stimulates economic growth. On the other hand, high inflation
can erode savings, reduce purchasing power, and create uncertainty in the economy. People on
fixed incomes suffer the most, as their income does not increase to match rising prices.

Governments and central banks monitor inflation through price indices like the Consumer Price
Index (CPI) and use monetary policy tools, such as adjusting interest rates, to keep inflation
under control. Ideally, most economies aim for a low and stable inflation rate, often around 2%
per year.

In conclusion, inflation is a key indicator of economic health and must be carefully managed.
While some inflation is a sign of a growing economy, excessive inflation can harm individuals
and businesses alike. Understanding

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