Inflation

Topic

Inflation

Instructions

Inflation rates like most statistics, are imperfect measures. Explain how inflation is measured. Critically evaluate why inflation may not perfectly capture price rises and what are the consequences of this failure for economic policy.

Answer preview

The cost of product or services per year can predict price changes that describe inflation. Inflation refers to an economic condition where prices increase with the gradual decline of buying power. Economic changes can increase the cost of products and services exhausting disposable income and power of spending. The calculation of Price increases per year shows the expensive living standards of the economy. This process is abrupt and short lived, although the effects are hard to recover after a year. Inflation diminishes the value of savings or investments in a long financial period destabilizing the economy.

Word count: 1661

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