Inflation is an economic phenomenon that is characterized by a continuous increase in the prices of goods and services in an economy over a period of time. This increase in prices causes the value of money to become more expensive and reduces the usefulness of money in purchasing goods or services.
Types of Inflation:
1. Demand-pull inflation: Occurs when the demand for goods and services exceeds the supply.
2. Cost-push inflation: Occurs when the price of raw materials or production costs increases.
3. Built-in inflation: Occurs when wages and prices of goods increase in response to rising costs.
Effects of Inflation:
- Decreases the purchasing power of money.
- Affects the saving of money.
- Can stimulate or cause instability in the economy.
Inflation control is often done by using economic tools such as monetary policy and fiscal policy to stabilize the economic situation.