INFLATION (Essay Sample)

Student’s Name Instructor’s Name Course Date Inflation Inflation is a phenomenon which tends to signalize imbalance of the national economy. It is defined as the rate at which a price rises or a long-term rise in the prices of goods and services as a result of the devaluation of a currency (Bernanke 10). More so, it is described as an increase in the money supply which tends to coincide with the credit expansion of the banking system. There are several causes of inflation which includes; money supply, national debt, demand-pull effect, cost-push effect and exchange rates. Nevertheless, the main cause of inflation is the increase in money supply that tends to outpace economic growth. Whenever there is excess demand or decline in aggregate supply, there is a rightward shift of the aggregate demand curve which eventually results in the shift of aggregate supply curve to the left. There are various methods through which inflation can be measured. Some of these methods include using the consumer price index and personal composition expenditures. While using the consumer price index, one measures price changes in consumer goods and services (Baumann et al 30). On the other hand, while using the producer price index, one measure the average price change based on the perspective of the seller. Various challenges are faced as individuals, or required stakeholders account for inflation. Some of the problems experienced include; changes in the quality of goods, shrink-inflation, one-off shock which tend to offer misleading impression, different groups which in most cases have different infl...