Macroeconomics: Theory and Policy

19

Inflation

After studying this topic, you should be able to understand

• Inflation leads to a decrease in the purchasing power of money.
• The two ways in which inflation can be measured are through a change in the Price Index and the Gross National Product Deflator.
• In the real economy since all prices do not change proportionately, some members of the society gain from inflation while others may loose.
• A household’s wealth depends on the difference between the value of its assets and debts.
• It has been observed in various countries that there exists a positive relationship between inflation and economic growth.
• Perfectly anticipated inflation exists when the rate of inflation is steady and perfectly predictable.
• Imperfectly anticipated inflation ...