Inflation
Definition
Inflation is an increase in the general price level of goods and services over time, resulting in reduced purchasing power for individuals and businesses.
Analogy
Imagine inflation as blowing up a balloon. As you keep adding air (increasing prices), the balloon gets bigger (reduced purchasing power) because it takes more money to buy the same things.
Related terms
Deflation: The opposite of inflation, deflation refers to a decrease in the general price level, leading to increased purchasing power but potentially causing economic problems.
Consumer Price Index (CPI): A measure that tracks changes in the average price consumers pay for goods and services over time. It helps gauge inflationary trends.
Demand-Pull Inflation: Occurs when there is excessive demand for goods or services relative to their supply, leading to rising prices.
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