Money, Banking, and Financial Markets Practice Test: Money and Inflation — Flashcards

Inflation is the rate at which the average price of goods and services increases over time. It can occur when the money supply grows faster than the economic output. 

Here are some causes of inflation: demand-pull, cost-push, and inflation expectations. 
Inflation can be measured by comparing the value of a price index over one period to another. The price index is a basket of various goods and services consumed by households. 
Inflation can reduce the value of your money over time. As inflation rises, each dollar buys a lower quantity of goods. This means that the money you have at the beginning of the year will get you fewer goods and services at the end of the year. 

Here are some types of inflation:
Creeping inflation: A gradual yet significant rate of price rise. Some define creeping or moderate inflation as yearly price increases ranging between 2% and 3%.
Hyperinflation: An intense and rapidly accelerating form of inflation with annual rates reaching millions. Examples include Germany after the First World War and Bolivia in mid-1985.