Topic 7 · macro
Inflation
When prices rise on average year after year, money loses purchasing power — that is inflation.
What it is and how it is measured
Inflation is a sustained rise in the general price level. It is measured by the consumer price index (CPI) using a “basket” of goods.
Causes
Demand-pull inflation (demand grows faster than output) and cost-push inflation (resources get more expensive). Also — excessive growth of the money supply.
Consequences
Savings lose value, redistribution (good for borrowers), uncertainty. Moderate inflation is normal; hyperinflation is destructive.
🎯 Now possible
- explain what inflation and the CPI are
- tell demand-pull from cost-push inflation
- name the consequences of inflation
Cheat sheet
Inflation = a rise in the general price level
Measured by the CPI
Demand↑ faster than output → demand-pull
Resources get pricier → cost-push
Inflation erodes savings
Practice on this topic
Where to read more: Мэнкью — гл. 25, 31Макконнелл–Брю — макроэкономика