IshaanBilala
Banned
Inflation
Economists use the term "inflation" to denote an ongoing rise in the general level of prices quoted in units of money. The magnitude of inflation--the inflation rate--is usually reported as the annualized percentage growth of some broad index of money prices. With U.S. dollar prices rising, a one-dollar bill buys less each year. Inflation thus means an ongoing fall in the overall purchasing power of the monetary unit.
Simply put, inflation is a rise in prices relative to money available. In other words, you can get less for your money than you used to be able to get.
Consumer Price Indexes
The purpose of a price index is to summarize information on the prices of multiple goods and services over time. Consumer spending accounts for about two thirds of the U.S. gross domestic product (GDP). The Consumer Price Index (CPI) and the Personal Consumption Expenditure deflator (PCE) are designed to summarize information on the prices of goods purchased by consumers over time. In a hypothetical primitive society with only one good--say, one type of food--we would not need a price index; we would just follow the price of the one good. When there are many goods and services, however, we need a method for averaging the price changes or aggregating the information on the many different prices. The rate of change of prices--inflation--is important in both macro- and microeconomics.
Hyperinflation
Inflation is a sustained increase in the aggregate price level. Hyperinflation is very high inflation. Although the threshold is arbitrary, economists generally reserve the term hyperinflation to describe episodes where the monthly inflation rate is greater than 50 percent. At a monthly rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of the following year.
Economists use the term "inflation" to denote an ongoing rise in the general level of prices quoted in units of money. The magnitude of inflation--the inflation rate--is usually reported as the annualized percentage growth of some broad index of money prices. With U.S. dollar prices rising, a one-dollar bill buys less each year. Inflation thus means an ongoing fall in the overall purchasing power of the monetary unit.
Simply put, inflation is a rise in prices relative to money available. In other words, you can get less for your money than you used to be able to get.
Consumer Price Indexes
The purpose of a price index is to summarize information on the prices of multiple goods and services over time. Consumer spending accounts for about two thirds of the U.S. gross domestic product (GDP). The Consumer Price Index (CPI) and the Personal Consumption Expenditure deflator (PCE) are designed to summarize information on the prices of goods purchased by consumers over time. In a hypothetical primitive society with only one good--say, one type of food--we would not need a price index; we would just follow the price of the one good. When there are many goods and services, however, we need a method for averaging the price changes or aggregating the information on the many different prices. The rate of change of prices--inflation--is important in both macro- and microeconomics.
Hyperinflation
Inflation is a sustained increase in the aggregate price level. Hyperinflation is very high inflation. Although the threshold is arbitrary, economists generally reserve the term hyperinflation to describe episodes where the monthly inflation rate is greater than 50 percent. At a monthly rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of the following year.