Inflation

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What is inflation?A pervasive and general rise in the average price level

Why inflation is a problem

• Inflation can be a problem when it is unexpected or very high, which can result in economic instability and people being afraid to spend money, which hinders economic growth. Furthermore, inflation can make products and services unaffordable to those on fixed-income. It can also cause creditors to lose money and create a negative impact on a country's trade.

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What causes inflation?The money supply has to increase more than goods and services increase

Causes of Inflation Demand pull inflation- refers to a

situation when prices of goods and services increase because there are not enough goods and services to meet market demand.

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Cost Push Inflation- occurs when a vital product has its supply line interrupted or costs dramatically increased.

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What isdemand-pull inflation?

A sustained rise in the price level caused by increases in aggregate demand

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Is it easy to fightdemand pull inflation?

Yes! When we lower demand prices will soon drop

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What iscost-push inflation?An increase in costs leading to an increase in prices

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Is it easy to fightcost push inflation?

When we lower demand with cost push inflation it will take longer before prices decline

No!

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Can businesses or consumers cause

inflation?Maybe for a short time, but very quickly prices will come down due to a lack of buying power

Effects of Inflation

Positive Debt- High inflation tends to wipe out

debt. Mundell-Tobin Effect- A complex effect

related to inflation. Offsetting Negative Effects of Deflation-

Deflation might sound good on the surface---an increased value of money.

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Negative Unemployment- when the cost of goods

and services go up, companies have higher overhead costs and consumers purchase less.

Investment Bubbles- when inflation is kept artificially low it can lead to speculative lending and borrowing.

Hoarding- During periods of hyperinflation, people have a tendensy to hoard goods.

Social unrest- one of the most far-reaching effects of inflation is general social unrest. 13

Effect of Inflation

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Solutions to solve the Problem1. Choose a Leader for Inflation Solutions2. Enhance Your Inflation-Fighting Know

How3. Benefit from Active Management4. Integrate Inflation Protection Strategies

into Your Portfolio

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Statistical Update1. Venezuela: 64.26 percent2. Sudan: 38.02 percent3.  Islamic Republic of Iran: 19.85 percent4. Malawi: 19.57 percent5. Belarus: 18.58 percent6. Ghana: 15.73 percent7.  Mongolia: 14.1 percent8. Eritrea: 12.26 percent9. Ukraine: 11.43 percent10.Liberia: 11.43 percent 16