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Decoding Inflation: Types, Causes, Effects, and Solutions

Learn about inflation types, causes, and effects on purchasing power. Explore disinflation, hyperinflation, deflation, and their impacts. Discover monetary and fiscal policies to combat rising prices.

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Decoding Inflation: Types, Causes, Effects, and Solutions

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  1. Chapter 3 Your Purchasing Power

  2. What Is Inflation? • Inflation is an increase in prices for goods and services. • Consumer Price Index (CPI) measures price changes over time. • As inflation rises, the purchasing power of the dollar falls. 3-1 Inflation and the Value of Money Slide 2

  3. What Are the Types of Inflation? • Disinflation occurs when the rate of rising prices slows down. • Reflation occurs when high prices are followed by lower prices and then high prices again. • Hyperinflation is rapidly rising prices that are out of control. • Deflation is a decrease in prices. 3-1 Inflation and the Value of Money Slide 3

  4. What Are Causes and Effects of Inflation? • Causes • Demand-pull • Cost-push • Real-cost • Effects • Higher employment rates • Less spending • Less saving 3-1 Inflation and the Value of Money Slide 4

  5. Focus On . . . • Fighting Inflation • Monetary policy refers to the actions by the Fed to stabilize the economy. • Fed controls the discount rate, federal funds rate, and prime rate. • Fiscal policy refers to the actions by the federal government to manage the economy. • Government raises/lowers taxes. 3-1 Inflation and the Value of Money Slide 5

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