Inflation is an increase in the price level of goods and services in economy over a period of time.Inflation is measured by:
1) Consumer Price Index (CPI): measure of a change in the price of a consumer goods and services - perspective of producers
2) Producer Price Index (PPI): a family of indexes which measure average change in selling price by domestic producers over time - perspective of sellers
High inflation:
1) makes a country become less competitive in international market
2) causes people to be confused and uncertain about how to spend their money
3) results in menu costs (a cost from continual changing of prices)
4) results in shoe leather costs (people rely more on bank to save on losing interest in bank)
5) positively influences borrowers and negatively influences lenders - income redistribution
6) reduces value of savings
7) can cause economic recession
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